What I Wish I Knew About ACV and Seller Motivation

Picture of Scott Barton
Vice President, Industry Solutions

 

The second episode of What I Wish I Knew is here, and it’s an important one for maximizing your growth as a seller and as an organization using annual contract value (ACV).  

In this episode, I sit down with Igor Uroic, Principal at the Alexander Group. Igor has a wealth of experience working with Fortune 500 companies in the areas of sales strategy, sales compensation, and quota setting and allocation. 

We dive into the topic of sales productivity, including the nuances of ACV. As a whole, it’s increasingly difficult to increase productivity with the rapidly changing technology and unpredictable market. And when organizations use annual ACV quotas for their sellers, there is the added challenge of trying to motivate sellers to close more deals earlier in the year. 

Here are just a few of the key highlights. Check out the full episode to get all the insights. 

 

Annual Sales Quotas Smooth Out Quarterly Cycles… 

Annual Contract Values (ACV) is a common measure for organizations that are using goals or quotas to incentivize recurring revenue. An organization that relies on ACV usually set annual quotas. Why is that? It has a lot to do with timing. 

Let’s say it can take up to 9 months to implement a solution. You don’t want to break the link between a performance period that’s shorter than the sales cycle. That can result in a lot of pushing or pulling of deals.  

It also sometimes can take a longer time for a customer to realize value. Asking for renewal when the customer is only just up-and-running isn’t a good success strategy.  

Finally, think of it from a predictability standpoint. Annual quotas remove some of the variability and lumpiness of shorter performance periods and the boom-and-bust cycle that can happen.  

  …But They Can Weaken Seller Motivation Early in the Year  

An issue that I hear repeatedly from sales and finance leaders is that annual quotas don’t sufficiently motivate sellers early in the year. Technically, with an annual quota, the seller has the same financial incentive to book a deal in Month 7 of the performance cycle as they do in Month 1.  Yet for the company, timing is critical for recurring revenue deals - sooner the better.  

How can organizations help sellers to book more deals earlier in the year? It’s an important question that is tough to answer. Igor gives some practical insight into what you can do, including accelerators and other ways to look at commissions. He also covers some of the trade-offs for using each strategy. Watch the episode to find out more.  

The #1 Challenge Is Setting and Managing Sales Quotas 

While quarterly periods make sense from a performance standpoint, organizations continue with annual because of the administrative burden. The Alexander Group has done 20 years of sales compensation studies, and every year the results are the same: the number one challenge is the difficulty of setting and managing quotas.  

Sales Comp Can Only Do So Much 

Compensation is not the only way to motivate your sellers. Igor calls compensation an alignment tool – it aligns to a strategy, role, and execution. Your secret weapon, beyond compensation, is the first-line manager. This critical role can motivate sellers by reinforcing your company’s sales culture, what it means to be a valued member of the team, and ensuring your seller’s professional goals align with those of the go-to-market growth strategy.  

Simplicity Leads to Growth 

If a salesforce doesn’t clearly understand what they need to do, or how they will be rewarded, how are they expected to hit their goals? A simple, easy-to-understand plan is more effective than one that is over-engineered with all sorts of measures, hurdles, and calculation steps. A simple plan benefits everyone. Managers can easily explain it, administrators can better manage it and salespeople can focus more on their customers and prospects.  

This second episode is packed full of insight for helping sellers and your organization grow, even in this challenging market. Goal-setting is not straightforward. Why is it difficult to deliver accurate plans on time? What are the roadblocks and how can you remove them? Check out our latest guide entitled Set Sales Goals that Maximize Revenue Potential. 

 

Did you catch our first episode of What I Wish I Knew?  Joel Shapiro and I talk about AI and the power of predictability. How can AI effectively forecast revenue? What else can AI help predict? Watch the episode to find out.  

 

 

Tags: Incentive Compensation, Varicent Think Tank

Picture of Scott Barton
Vice President, Industry Solutions

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