How to Really Motivate Salespeople

Doug J. Chung

Article | Harvard Business Review

How to Really Motivate Salespeople

Abstract

Much of what we believe about the best ways to compensate and motivate the sales force is based on theory and lab experiments. But in the past decade, researchers have been moving out of the lab and into the field, analyzing companies' sales and pay data, and conducting experiments involving actual salespeople. The findings from this new wave of research support some current compensation practices but call others into question. For example, studies clearly show that caps on commissions hurt sales. If managers must retain a cap, they should set it as high as possible to avoid reducing reps' incentives. Although overly complicated compensation systems have their downsides, research has found that a system needs to include enough elements (such as quarterly performance and overachievement bonuses) to keep high performers, low performers, and average performers engaged throughout the year. Managers should be careful in setting and adjusting quotas. For instance, studies show that ratcheting (raising a salesperson's annual quota if he or she exceeded it the previous year) dampens motivation. The research also suggests that it's important to pay attention to the timing of bonuses: a reward given at the end of a period is more motivating than one given at the beginning.

Keywords: Sales; compensation; motivating people; Motivation and Incentives; Compensation and Benefits; Sales;

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Citation:

Chung, Doug J. "How to Really Motivate Salespeople." Harvard Business Review 93, no. 4 (April 2015): 54–61.

The prevalence of online platforms opens new doors to traditional businesses for customer reach and revenue growth. This research investigates platform choice in a setting where prices are determined by negotiations between platforms and businesses. We compile a unique and comprehensive dataset from the U.S. daily deal market, where merchants offer deals to generate revenues and attract new customers. We specify and estimate a two-stage supply-side model in which platforms and merchants bargain on the wholesale price of deals. Based on Nash bargaining solutions, our model generates insights into how bargaining and competition jointly determine the price and firm profits. Our results show that there is systematic variation in bargaining power between platforms and merchants with different characteristics. By working with a bigger platform, merchants enjoy a larger customer base, but they are subject to lower margins due to less bargaining power during negotiations. Our counterfactual results quantify the value of platforms for merchants and show that merchants with lower bargaining power benefit more by working with a smaller platform. Regarding the impact of price negotiations on platform competition, we estimate that roughly 11% of the deals on a smaller platform are attributable to the platform’s lower level of revenue sharing.

Sales compensation is a critical lever in motivating a salesforce and driving growth in the business-to-business sector: Studies show that revising compensation in line with market trends can have a 50% greater impact on sales than advertisements have, for instance. A vital part of getting compensation right is setting the proper sales targets. Poorly set targets often misfire, failing to deliver the expected benefits and demoralizing the sales force in the process. We see businesses in many sectors struggling to set ambitious but fair targets that will motivate salespeople to deliver organic growth. A few companies are finding solutions: They are using advanced analytics to identify the true drivers of business outcomes and are applying big data and machine learning to understand customer demand at an unprecedented level of accuracy and granularity. Armed with more reliable projections, they can establish more meaningful targets.

Case | HBS Case Collection | February 2019 (Revised July 2019)

Sales Force Management at Nobel Ilac

Doug J. Chung and Gamze Yucaoglu

The case opens in 2017 as Hakan Sahin, CEO of Nobel, the Turkish pharmaceuticals company, reviews Nobel’s year-to-date performance. The case describes the pharmaceutical market and sales channels in Turkey and provides a background on Nobel. The case also provides details regarding a transformation strategy; particularly, a customer segmentation plan, whereby the sales force began to use a scientific matrix when determining their call plans. As a result, between 2014 and 2017, Nobel increased its sales significantly, and its previously negative EBITDA reached double-digit positive numbers. In 2017, two key issues still remained: growth was not as high as desired, and the voluntary turnover rate for the sales force was very high. Given that the sales force was the only go-to-market channel for Nobel, Sahin needed to do something to reduce the sales force turnover without affecting the positive trend in sales and profits. He contemplated the options with his executive team where many proposed a change in sales force compensation. Should he increase the fixed base salary, increase the performance-based variable pay, or change the fundamental structure of compensation? Or should Sahin keep compensation the same and adjust other factors such as the recruitment criteria, mentoring, and (or) training?

Keywords: Sales strategy; compensation; Employee Retention; recruiting; Pharmaceuticals; Salesforce Management; Strategy; Organizational Design; Human Resources; Compensation and Benefits; Employees; Retention; Recruitment; Training; Emerging Markets; Private Sector; For-Profit Firms; Pharmaceutical Industry; Turkey;

Citation:

Chung, Doug J., and Gamze Yucaoglu. "Sales Force Management at Nobel Ilac." Harvard Business School Case 519-067, February 2019. (Revised July 2019.) View Details

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