Analysis: Just 28% of B2B Sales Compensation Pays for Selling

15 Jun

In the movie industry, smart investors measure how much of each dollar “hits the screen.” Money spent on the product — film production, actors, sets, and the like — has the potential to generate a return. Money spent off the screen on insurance, cars, administrative staff, paperwork, lawyers, accountants, security, and other back office functions typically doesn’t generate any return.

The same is clearly true for managing sales organizations. Sales compensation budgets, in particular, have the biggest impact on revenue and margin when the dollars  pay for selling. They have less of a direct impact when they pay for sales operations, sales administration, and sales time spent on non-selling activities.

So how much of every sales compensation dollar “hits the screen?” In a typical B2B sales organization the answer is: shockingly little. Based on my analysis, roughly 28% of sales compensation actually pays for selling. The rest pays for other peripheral activities.

What are the biggest syphons of sales resources?

(1) Non-Selling Time: According to a recent Accenture study, just 41% of sales rep time is spent on selling via the phone or face-to-face. 59% of sales time is spent doing other things. In particular, nearly a quarter of sales time is spent in meetings and on administrative tasks. The remainder of time is spent in training, account service, and account research.

(2) Sales Operations and Administration: It’s not uncommon to see sales support budgets of 20% or more. Sales support teams often handle everything from quoting to order-takign and fulfillment. In some large organizations, team manage go-to-market structure, sales compensation, sales training, and other sales related functions.

(3) Turnover and New Rep Training: According to the Accenture study, 25% of sales representatives changed jobs last year (11% left voluntarily, 14.8% were terminated). With a typical new representative hiring and ramp time of 6 months or more, at least 12.5% of sales compensation is spent on ramping new sales representatives to productivity.

Together, these numbers suggest that just 28% of sales budgets are spent on selling. For most sales organizations, closing this gap would create an enormous opportunity to drive incremental revenue. While numbers vary widely, most business-to-business companies spend between 10 and 30% of revenue on sales and marketing. Together, sales and marketing may be the biggest corporate line item, sometimes even bigger than cost of goods sold.

While sale productivity will never reach 100%, or anything near that, organizations that find a way for more of their sales dollars to “hit the screen” will be able to grow faster than their peers.

One Response to “Analysis: Just 28% of B2B Sales Compensation Pays for Selling”

  1. Peter Guy August 13, 2012 at 9:35 am #

    Paul: This has absolutely been my experience as well. The sales productivity problem is an organizational one and not one of gaps in data, systems, or CRM. Reps are being asked to do too many things that don’t involve selling and it is a problem in all industries from banking to tech resellers to B2B products and services. Obviously, the higher the variable comp (commission), the less this is a problem because leadership is saying one thing but incentivizing another (so reps just ignore non-selling activities because they’ll still get paid.) The bottom line is reps know who call and how to sell and most sales teams are better off finding ways to free up their admin time and increase selling time, and better-aligning incentives than spending money buying data and developing systems to further distract front lines salespeople.

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