A friend of mine at a small CRO (contract research organization) asked me recently about how to measure sales performance in a down economy. She wondered if the measurements should change when the economy goes south. I thought it would be interesting to put it in the blogosphere and see what kind of comments we get here.
My first question back to her was to ask if the targets had changed. What I find, particularly in smaller organizations, is that forecasts are built based on a combination of what you’ve done in the past and what your board expects you to do in the future, as opposed to being built based on what you know from your clients. This approach to forecasting fails to look at how current conditions may impact your market and sets a team up for failure. (Note: revenue is more predictable the larger the organization grows and becomes a much more important activity as public scrutiny of your results grows.)
In the life sciences, forecasting revenue is typically easier than forecasting new contract awards, because clinical trials have a fairly predictable time span and revenue is earned as work is done over the life of the trial. Contract awards are typically much harder to predict in the life sciences because the trial start date is variable depending on feedback from regulatory agencies on the protocol, site selection, and sometimes even funding. Most salespeople I know in the life sciences are compensated based on the new contract awards, which is also, most commonly, the number used for their measuring stick.
Salespeople are accountable for their number and should drive what that number will be for the upcoming year. In order to build an accurate forecast, salespeople should be spending time at the end of the year with every client and near client. Look at their pipeline and see what work they’ll need to support hitting their goals. As an example, if they are a development company with five indications in active trials, find out what new trials will be starting, if the trials are funded, and which ones they’ll be doing in-house versus outsourcing. This is the basis for a more accurate forecast. Then look at how many new clients you’ll get from various sources. Use both historical data and current trends to predict this as accurately as possible. If you signed five new clients the past year, but the signs are that funding will be cut and fewer trials will be run, look at a number between three and five for the current year. Add in any new products, services or price changes that you know will affect the forecasting period.
That’s the start of a more accurate forecast, but that really only answers part of the question raised at the beginning of this blog. The real question is, do you measure salespeople differently in a bad economy than in a good economy? While having an accurate forecast, based in reality is an important part of the answer to that question, it isn’t the whole answer.
I believe that the number of new clients added, the amount of new contract awards won, are valid metrics. However, they only measure the end goal. I know, some people believe that the final score is all that matters, but I don’t happen to be one of those people. As a sales leader, I’m much more interested in whether my team is doing the things we know they have to do to win new business. Particularly in the life sciences sale, there are so many things that are out of a salesperson’s hands, but what they can control are the things they need to be measured on. You can’t make a client buy because you need the sale, but you can make sure you are in front of them when they are ready to buy.
A salesperson can be measured on getting the right information to drive the sale forward. Have they identified everyone involved in the buying decision? Have they identified and mitigated the risks for the buyer? Are they preparing for their meetings in the right way? Are they involving the right people from your organization at the right time? All of these things are harder to measure than whether they hit their number, but they are more important in identifying whether your salesperson is effective or not.
A salesperson can’t control if one of their prospects suddenly has four of their five indications put on hold because funding has evaporated and the prospect has to focus on the most important study. But they can control whether they know about this in time to recover from it, and they can be positioned so that when those other studies do go live, they stand a chance of winning them.
So my answer to my friend is that, no I don’t think how a salesperson is measured should change depending on the economy. I always believe that salespeople should be measured on doing the right things repeatedly in order to win business. But I do think that targets need to be adjusted based on what real information you have on the clients and the market.