Setting New Sales Goals to Turn the Sales Force Around
Did you ever feel like you were paddling upstream against a Class 3 rapid? This was what Mark Phillips told his wife he felt like. Mark and his wife, Beth, were discussing what had transpired during the workweek during their regular Friday night dinner out in downtown Omaha, Nebraska. As usual, the conversation revolved around Mark's continuous battle to stay afloat in his job with Freedom Telecom.
Beth and Mark had been married for 35 years, had put four sons through college, and thought by now they would be enjoying their lives as empty nesters. Five years ago, not only were they sure they would be empty nesters by now, Mark was even looking forward to early retirement after 30 years of service with Freedom Telecom. He was 55 years old and making over $100,000 a year in salary and commissions. His plan was to retire from his longtime employer under the rule of 85 (age + years of service) and collect a pension that would have covered all of his and Beth's healthcare costs and pay him 50 percent of his salary annually for the rest of his life.
Freedom Telecom's outstanding retirement benefits package was one of the main reasons Mark and his colleagues were so loyal to the company over the years. They even referred to their pension benefits as the "golden handcuffs." Employees rarely left the company because finding a benefits package as generous as Freedom Telecom's anywhere else in the industry was next to impossible.
Unfortunately, however, things weren't turning out the way Mark and Beth thought they would. Freedom Telecom had experienced problems, and the company was in trouble. Mark's pension was now gone, revoked because of Freedom Telecom's financial difficulties and rising national healthcare costs. Mark now knew he was going to have to work until at least age 67. That's when Medicare would kick in and cover some of his healthcare costs. Despite his troubles, Mark summed up the situation after dinner: "The past is the past. I have a duty to give the company my best until I decide or they decide my services are no longer needed," he told Beth.
Freedom Telecom's financial difficulties were well documented on the front pages of newspapers and business magazines across the country. First, there was the scandal involving inflated revenues that forced Freedom Telecom to restate its profits going back four years. Following a major plunge in the company's stock price and a federal indictment, the firm's CEO, CFO, and financial auditors took a very public and humiliating fall from the corporate tower. Although none of the company's officers served jail time for their actions, the damage to the Freedom Telecom brand name was significant. As a result, customers jumped ship like it was the Titanic.
With a public relations mess on its hands and bleeding red ink, Freedom Telecom faced the challenge of re-branding itself and moving forward with significantly smaller lines of credit. In response, competitors took advantage of the company's weak stature and doubled their efforts to gain market share. Making matters worse was the major drain of young talent Freedom Telecom experienced. Most employees under the age of 40 left for smoother waters. In just a few years, Freedom Telecom went from a vibrant company trumpeted by investors to an oft-used "don't do this" case study in college business ethics classes.
Mark lived all the ups and downs Freedom Telecom had experienced. As one of the company's regional sales managers for commercial accounts, he had a unique vantage point. He often joked that he needed all of his fingers and toes to count how many times he had to apologize each business day to his sales group for problems that were a result of a waning company. Mark maintained his wry sense of humor and a penchant for using analogies that involved boats and water. His latest e-mail to his reps was a good example:
Crew, it seems we find ourselves in quite a predicament in the middle of an ocean of issues. We have an old navigation system, the motor is in need of repair, the captain jumped overboard, the sky is full of clouds ready to open up with a major storm, and we are faced with finding our way to land before we sink or are shot out of the water by a pirate. Did I mention that we also are taking on water? I need your attention now more than ever to focus on the here and now and work together to right this ship. Once we find land, I am confident we can start to build customer relationships again on solid ground. Please forward me your individual action plan on how we can find land in the next 30 days. I will be sharing with you our region's first-quarter goals once you give me some solid ideas.
—Mark "Skipper" Phillips
Freedom Telecom was one of the many spin-off companies that emerged out of the breakup of the once-monopolistic U.S. telecommunications industry. After the federal government broke up the monopoly "Ma Bell" in the 1970s, several firms like Freedom Telecom sprung up and prospered by leasing Ma Bell's existing phone line infrastructure and focusing on niche regional business markets. Early on, Freedom Telecom primarily served rural residential customers in the northern plain states. The company established its headquarters in Omaha, and over the course of 30 years, grew into the third-largest telecommunication company in the United States.
For many years, Freedom Telecom touted the sales slogan: "Freedom to choose with dependable service." Indeed, early on, the firm grew by persuading residential customers to switch from their existing local- and long-distance service providers to the company's "freedom plan." With no capital invested in infrastructure, Freedom Telecom was able to use a low-price pitch with great success to attract customers. The plan offered customers a 50 percent discount off of their previous monthly phone bills and soon became one of the most popular plans in the Midwest.
However, as the industry became flooded with competitors, it became increasingly difficult for Freedom Telecom to be the low-price leader in its market. As a result of shrinking residential market share, Freedom Telecom started to target commercial business customers. The top salespeople and managers in the residential sales group were moved to a newly created commercial division.
Mark was on board in the commercial division beginning day one. In a few short years he worked his way up to sales manager, and in 1995, he was promoted to his current position as Freedom Telecom's regional sales manager in charge of commercial business accounts. During his tenure, the commercial division grew to become the most profitable division within Freedom Telecom. The profits from Mark's region alone represented 10 percent of the company's overall profits last year.
The success of the commercial sales division was based on three solid fundamentals Mark developed: (1) every contract had to be written to provide Freedom Telecom with long-term profits; (2) innovation had to be at the forefront of every new service offered; and (3) customers had to be treated like family members, be shown respect, and given honest answers to their questions. One of the reasons Mark was so successful in his position was the fact that he truly believed in these three business principles and lived his
daily life by them. Mark also felt people should enjoy what they do, and he always brought a sense of adventure and fun to everything he was involved in. Not surprisingly, he was well liked by everyone, including the 12 salespeople who reported to him.
Over the years Mark pushed for new cutting-edge services and deals like partnering with Motorola on equipment offerings, bundling phone and Internet access, offering direct connect services (two-way direct communications), and introducing technical service and systems installation products to Freedom Telecom's service offerings. But aside from a few old-timers in the repair division, not many current employees remembered Mark's long-standing contributions to the comAttendees of Freedom Telecom's last shareholder meeting were led to believe Wendy Maxwell, aged 43, would be the new savior of the company. Wendy had a very successful 20-year sales career in the pharmaceutical industry and was brought in to fill Freedom Telecom's vacant vice president of sales position. Mark would be one of her direct reports as a regional sales manager.
Mark learned shortly after her arrival that Wendy had hit the ground running in her new position. In her first week as vice president, she changed the Freedom Telecom's commission structure, developed rigorous customer contact goals that had to be verified and, like Jack Welch, the renowned former CEO of GE, terminated the lowest-producing 10 percent of the sales force.
Mark finally met Wendy two weeks after she had been hired. During the meeting, Mark made every effort to understand what Wendy was trying to accomplish and how she defined her long-term sales goals. Mark had not lost any of his representatives to Wendy's cuts, and he saw an opportunity for his region to make more money under her commission structure. Most of Mark's questions for Wendy surrounded her new call reporting edict:
"It's been my observation from looking at the commercial accounts division that your salespeople must be wasting time calling on the same customers they have called on for years," Wendy responded. "They never push to make contacts higher up within the new organizations they're trying to sell to—to reach executives who make major decisions. They are missing additional sales opportunities by not having these high-level relationships. I want each of your salespeople to make at least two calls a month at the executive level, and I have a list of titles that qualify as executives." Wendy went on to explain that Mark was to monitor his representatives' call reports and spot-check their phone calls to verify the visits took place. In addition to the two in-person executive calls, 10 mid-level personal calls, and 20 low-level personal calls were to be made each month by each salesperson.
Mark explained to Wendy the way his region was structured and how it might be difficult to make her new call reporting system work for his salespeople. "I'm not making excuses," Mark said. "However, I have specialists within my region that have different strengths. Frank Wood is extremely good at opening doors at the executive level, so he would have no difficulty reaching two executives a month. He might even meet that goal every week. Rick Sutton is my technical salesperson. I send him in to work with the customer's information systems representatives to answer questions that no one else in my region can answer. His expertise is networking-based. I would not call him a salesperson, but most of the sales our region has made are due in part to Rick making customers feel comfortable with the technology. I also have Matt Moore, who has only been in my group for two years. But this guy is an icebreaker. He gets into customers we couldn't crack for years. Once he is in the front door, I team him up with Frank, and they work their magic."
"Stop right there," interrupted Wendy. "I'm not looking for some magic sales formula. I am trying to employ a proven sales plan that if executed correctly will give this
company a quantifiable amount of sales, month in, month out. If salespeople cannot make the numbers I set forth, then HR will hire new salespeople who can. Now are you going to implement my structured call reporting plan and make sure your salespeople are meeting their goals? Or do I need to find someone else who will?"
After a brief pause, Mark caught his breath. He did not answer Wendy's question because he thought it was rhetorical anyway. "Wendy, if my salespeople reach their sales call goals, how will you translate those calls into final sales numbers?"
"If our sales call quotas are met and we maintain the industry average of closing sales, which is 20 percent, we should increase our overall annual sales by 15 percent," answered Wendy. "To help us increase our closing ratio, I also plan on instituting a mandatory five-day, in-house sales training course that each sales representative will need to pass once a year. I have already enlisted an outside sales consultant I have worked with in the past to run the sales training program for us. You and the other regional sales managers will also need to complete and pass the sales training."
Mark did a quick calculation in his head of what his region's closing ratio was and came up with 10 percent—not 20 percent. He also knew it sometimes took years to fully develop a relationship with customers before they would enter into contracts. "What do you consider a closed sale?" he asked Wendy.
"A closed sale is a 12-month signed contract for one or more of our services," Wendy replied.
"What about long-term contracts?" Mark inquired.
"There's little or no customer loyalty in the telecom industry, Mark," she replied. "We are in a fast-paced cutthroat industry. Either you get eaten or you eat someone else and live to survive another day. Right now, Freedom Telecom is on the verge of being eaten. Unless I can increase our sales in the next six to nine months, it is likely we both will be working for someone else."
Mark pondered the situation. He supervises four teams in his region, each of which consists of three individuals. Each team is located in a different city: Denver, Kansas City, Oklahoma City, and Little Rock, Arkansas, and is given a sales quota based on its previous year's sales. In previous years, the company expected a 10 percent increase in sales each year for his 12-member group. In addition to nine regular salespeople, Mark has one technical salesperson, one salesperson dedicated to new business, and one salesperson dedicated to growing the services sold to existing accounts. Occasionally, Mark sends different team members into another team's city if he thinks a better relationship might be formed with a certain customer. However, in most cases, he has only done this when an existing account was in jeopardy.
Mark spends at least five days a month working with each of the four teams he manages (20 days a month in the field). He often shares the experiences he's had with one team with his other teams to help his entire group succeed. Mark knows all of Freedom Telecom's key commercial customers in all four cities by name and was involved in closing most of the larger sales contracts. An average customer contract is worth approximately $250,000 a year, and Mark's 12 salespeople are managing about $72,000,000 in annual contracts. Broken down by salesperson, this represents about $6,000,000 (24 accounts X $250,000) per salesperson. A full 80 percent of existing contracts have been in existence for two years or more.
Each salesperson is paid a salary based upon his or her years of industry experience and receives a yearly cost-of-living increase. As Exhibit 1 shows, a bonus has been paid to the group based upon it achieving a certain percentage of its sales goal and is equally divided among the 12 members in Mark's region and Mark himself. He shares the regional bonus as an equal member, in other words. In past years, the region's bonuses, when broken out individually, were 20 to 30 percent of a person's salary (depending on the salary an individual salesperson was earning).
Former Regional Bonus Structure (based on % over previous year's final sales figure)
1percent over sales quota ($25,000 bonus)
2percent over sales quota ($50,000 bonus)
3percent over sales quota ($75,000 bonus)
4percent over sales quota ($100,000 bonus)
5percent over sales quota ($125,000 bonus)
6percent over sales quota ($150,000 bonus)
7percent over sales quota ($175,000 bonus)
8percent over sales quota ($200,000 bonus)
9percent over sales quota ($225,000 bonus)
10 percent over sales quota ($250,000 bonus)