While most salespeople have individual income goals, they lack any structured, organized way of achieving them. The sales manager is the person who must orchestrate and manage the process of goal setting and goal achievement.
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Goals are the single most important factor in managing and coaching salespeople
For the last two months, we've talked here about finding and retaining quality people for sales and other positions in your store. We've also discussed the concept of creating high-quality work environments, and in these discussions, we touched on the importance of goals. Now we're going to do more than just touch the subject of goals; we're going to give it a good massage.
Particularly in sales positions where individual skills and performance determine income, goals are a crucial part of the sales-management equation.
In fact, goals are the single most important factor in managing and coaching salespeople. One of the fundamental reasons people don't achieve higher levels of performance in sales is that, while they have individual income goals, they lack any structured, organized way of achieving them. Some people are good at setting and tracking their progress toward their goals, but experience tells me that it's rare to find a person strong enough to remain focused on his or her professional goals without managerial guidance. And it's rarer, still, to find a person who remains focused on the goals and then actually achieves those goals. It's too difficult for one person to do all that alone. For most of us, some kind of help and support is needed, and it is this help and support that should define the job of sales management.
At least it should, but we see, far more often in our industry that sales managers are anything but coaches to the sales staff. They're price tag writers or just another arm of the merchandising department, spending far more time working with things than with people. Customer service is a favorite hangout for sales managers as they handle the deluge of calls and problems created, often, by salespeople or other staff members who lack knowledge or training in some area. This could be avoided or, at least, diminished if the manager were to spend more time training and if accountability systems were in place to resolve such issues. But, of course, the manager can't spend time training because she's too busy handling the problems. Get the point here?
The most important thing a sales manager can do is to learn and fully understand the personal goals of each salesperson on his staff. I mean all the goals that are important to each individual - including income, career and family goals. To understand these goals, the sales manager must build a personal relationship with her people. The salespeople must be willing to share their personal goals with the manager, and the manager can't build such a relationship by writing price tags or handling customer complaints. This relationship will evolve through trust and by providing principle-based leadership for people, not things.
Why is it important to know all these things in order to manage people? Because understanding these goals will define for the manger what level of commitment can be expected from the individual to the store's goals. Goals and commitment are inextricably connected. Without the commitment to doing the things necessary to achieve the goal, whatever that goal may be, there is little hope of getting there. Many times all the person needs is a little push, a little support and a little feedback once in a while to get them to where they want to be. This work is called coaching. This is how we define sales management, coaching people to their goals. It's creating those wonderful, supportive, challenging working environments that we've been talking about for the last few months.
Understanding Goal Development
Goal setting is one thing, but in our business there is much more to the process if goals are going to be achieved as well as set. People should be asked to set income goals for themselves, not sales volume goals. Income is what people are interested in and what they are most likely to relate to when talking about developing their goals. You, of course, want sales volume, but that is your goal and it will be addressed in the goal-development process.
The next step is to determine what is the actual income for each person derived directly from sales. In some companies I have seen non-sales related income as high as 20% of total income. This would be bonuses, spiffs, vacation and sick pay and other such non-sales related payments. You may say that spiffs and bonuses are sales related and that's true, but not directly. These payments are made in addition to regular commissions and do not increase your sales volume, only your payout. For the purposes of goal development you want to tie down that portion of income producing pure sales.
Let's say you determine that your salespeople receive 15% of their annual income from non-sales related sources, so a person earning $40,000 actually earns only $34,000 from direct product sales that create sales volume. If your commission rate is 6%, this person will have to produce $566,667 in sales volume to earn $40,000. The amount above $34,000 will not produce one additional dollar in sales volume. This means that your actual effective commission rate is 7.06%. Let's say that this person sets an income goal of $50,000 for the next year. You can divide that number by the effective commission rate of 7.06% to get a sales volume figure of $708,215. Or you can apply the 15% deduction giving a true income from sales of $42,500, then divide this by your rate of 6% and you'll get $708,333 - close enough for furniture work.
If you were to simply divide the goal of $50,000 by your base commission rate of 6% you'd be looking for $833,333. Given that spiffs, bonuses, vacation pay and sick pay are variables and will change from time to time and are different for different people, you have to know this relationship for each person to be on target with the goals. Going with the higher number may be tempting, but it could also be a demotivator if this level of performance is too difficult to achieve. Goals must be achievable and consensual.
Many stores pay commissions on some sliding scale or vary rates for different categories of merchandise, but after all is said and done there is an average rate (which will vary by person) that can be used in this process. Stores that pay commission on gross margin (a practice that I find to be truly repugnant) will also be able to use a calculated standard rate by dividing an individual's sales volume by total compensation, after adjusting for all non-sales compensation.
Written or delivered?
Goals should always be based on written sales. Regardless of how commissions are actually paid, written sales define the real work of salespeople. Written sales are the only measure of today's results vs. today's traffic and today's work. Written sales are completely within the realm of salesperson control - the things they do (or don't do) determine the outcome today.
Delivered sales, on the other hand, are largely beyond their control and relate to past time frames. A delivery today may relate to selling work done days, weeks or months in the past. Outside influences such as delayed deliveries can affect delivered sales. Finally, just remember that every delivery requires a written sale first.
The Cancellation Factor.
If your store has a cancellation rate of, say, 5% of sales, this too has to be factored into the goals equation. Again, you'll have to know by salesperson what the rate is because if your overall rate is 5%, this is simply an average and usually means someone is at 10% and somebody else is near zero. If you don't track this by person, you should. Using our previous example, let's say our salesperson has a cancellation rate of 5%. The goal for written volume now rises to $745,614, thereby accounting for cancellations.
You have now successfully helped the salesperson develop her goal for how much business she has to write to net enough delivered volume to achieve her income goal of $50,000. You've accounted for expected cancellations (coaching her if that's too high for your store) and for non-sales related income based on her individual record of compensation. For new people you can use store averages until a record has been established.
This is just the first step in goal development. The heart of the process and the soul of coaching are next. That is the process of determining, with the person's help, if the goal is achievable given her past level of performance and given the territory you've defined for her. See you next month.
CASE STUDY-GOALS: ELAN CONTEMPORARY FURNISHINGS
"The goals management process is all about working with people, helping them improve and grow."
Chris Bouchard, Sales Manager standing (right) with design staff: Front (l-r): Amy Breen, Todd Hanton, Angela Bruno, Jill Wegner. Middle (l-r): Stacie Tabor, Janet Lind, Michelle Flemming, Jenny Chalupnik. Back (l-r): Gretchen Briggs, Cherlyn Kallmer, Eunice Wacker, Lori Maruska, Sharon MaCKinnon, Barb Johnston.
Personal and professional goals are at the heart of Chris Bouchard's efforts as sales manager for Elan Contem-porary Furnishings in Omaha, Neb. With 13 designers on staff, Bouchard says he wouldn't have been as successful as he has been for the last 18 months if he hadn't embraced the goals-driven management techniques that he learned from the Shepherd Management Group's sales-management training.
"It's an every-day process for us," Bouchard says, explaining how he reviews individual performance reports on a daily basis and meets with each staff designer at least once a month, more if their production seems to need coaching.
With performance goals, not volume goals, as the primary language for evaluating success, each member of the staff understands what he or she should be working toward. "You've got to have a motivator, something you want to achieve," Bouchard says. "People love money, and they want to keep working towards that."
Goals are set each year based on the individual designer's income objectives and past performance in
terms of close ratio, average sale and cancellation rate. "It's a combination of how I think they should do and how they think they should do," he explains. "I don't set goals for people." Goals are much more powerful when the designer or salesperson has input and commits to the target as a performance standard.
"They get excited about meeting and exceeding their goals," Bouchard says. "We've even seen designers go out and buy new cars because they're tracking ahead and see that they can afford it."
At his monthly meetings, the goals are the centerpiece of the discussion, and Bouchard will talk with the designer about areas of strength and weakness, which are usually expressed in the performance reports. He also observes his designers in action throughout the month, and gives each of them feedback at these meetings. Finally but perhaps most important, Bouchard uses these meetings to reinforce his personal relationships so that he understands what is happening in the lives of his designers.
"You've got to be able to come down hard on them when you need to, but you've always got to have a close relationship," he says.
Bouchard works off quarterly averages in order to smooth out monthly volatility in performance reports. He talks most frequently with people who aren't reaching their goals. If the goal set at the start of the year now seems to be unattainable, Bouchard will work with the designer to set a new, more realistic goal. "We don't want them getting depressed about their goals," he says.
New designers are sometimes intimidated by goals at first, but Bouchard says, "Once they get involved with the process, they're usually fine with it."
The goals-management process is all about working with people, helping them improve and grow. Bouchard says it works at Elan Contemporary because the owners, Gary and Connie Stevenson, recognize the value of the process. "My responsibility is the sales team," he says. "Goal management works in our store because the owners let me to do it. I have the time to meet with people and work with them. If I'm caught up, I'll help out with other things around the store, but my primary job is to help our designers reach their potential.
Joe Capillo is a 41 year career veteran, experienced in managing and consulting with furniture retail operations. He is also a contributing editor for Furniture World Magazine. He is a contributing editor to FURNITURE WORLD and a frequent speaker at industry functions. See all of Joe’s articles on the furninfo.com website.
View all articles by Joe Capillo