A recent Harvard Business Review article by Professor Kumar and colleagues makes a bold claim: A sales rep’s past performance doesn’t predict his or her future profitability.
What they argue that you should be using instead to assess the profitability of your sales team is salesperson future value.
Salesperson future value (SFV)
Professor Kumar and colleagues define salesperson future value (SFV) as the net value of future revenue from a salesperson’s customers (i.e., the customer lifetime value (CLV) of the rep’s existing and prospective customers) after accounting for the costs of developing, motivating, and retaining the salesperson.
By examining seven years of data on approximately 500 salespeople and their customers in a Fortune 500 B2B software, hardware, and services firm, these researchers found that they were able to accurately predict SFV within a three-year horizon, as it becomes too difficult to predict customer behaviour beyond that point.
Factors that predict SFV
Type of training
The researchers examined two types of training that salespeople receive:
- Task-related: gaining knowledge about the product/service, the industry and competitors, the current and potential customers
- Growth-related: leadership development, negotiation strategies, adaptability (how to adjust selling strategies for the situation)
Similar to salespeople with a learning vs. performance orientation, they found that salespeople can be classified as:
- Training-driven: motivated more by instruction and learning
- Incentive-driven: motivated more by monetary and other rewards
The research found a positive correlation between training and salespeople’s future value but only up to a point.
The results showed that the optimal annual amount of training for training-driven sales reps is 29 hours vs. 17 hours for incentive-driven sales reps. So the investment required by training-driven salespeople is greater but the long-term payoff is also greater: $296,000 in average future value vs. $287,000 for incentive-driven reps.
In the short-term, monetary rewards were motivating for both training-driven and incentive-driven sales reps, and they had a greater effect on the performance of incentive-driven reps.
In both the short- and long-term, non-monetary rewards such as “salesperson of the month” contests and peer recognition were motivating for both types of sales reps. Again, they were more motivating for incentive-driven reps.
Not surprisingly, the researchers found that a combination of monetary and non-monetary rewards had the biggest impact on sales reps’ future value.
This research illustrates that a sales rep can underperform because of a misalignment of their internal motivation with the training and incentives they receive.
The Fortune 500 company the researchers studied increased investment in growth-related training for the training-driven reps and increased rewards and recognition for the incentive-driven reps. Within three years, the sales team achieved an 8% increase in salespeople future value.
Professor Kumar and colleagues conclude
An exciting implication of SFV measurement is that it allows a firm to profile top performers in a given segment and then recruit and optimally train and motivate others like them.
So maximizing the profitability of your sales team isn’t just a matter of training.
How well you profile your top performers and hire salespeople who fit that profile based on their motivations and drivers could make the difference between mediocre performance and runaway success.
Are you profiling your top sales performers? Let me know in the comments or tweet @recruit_smarter.
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