Sales Conflict
Conflict is not a good characteristic of excellence in any organization, extraordinarily detrimental in sales. Conflict in sales is most often related to how compensation is structured and is heightened by gaps between what the sales representatives thinks they have accomplished versus what sales leadership thinks. If compensation plans are well structured, taking into account as much ambiguity as possible, sales conflict can be minimized.
Sales leadership has to protect the essence of the compensation plan so giving in to conflict too often can undermine the validity of the sales plan itself. What most sales leaders are trying to balance is the cost of sales (including rep compensation) and the gross margins achieved. If compensation gets too high as a result of soft conflict management, great gross margins erode by the time the bottom line is determined. Sales leadership compensation is often measured at the bottom line (as are overall team bonuses), so managing cost of sale and therefore conflict in this context is important to keep an eye on.
We'll look at a variety of conflict situations and possible ways to handle them. We'll also look a bit at how compensation plans fits into the success equation so excellence is achieved.
Basic Conflict (Compensation)
Most sales conflict revolves around how compensation plans are set out. Even the simplest of plans with focus only on revenue can result in conflict between sales management and sales reps. Disputes can occur on what deals are recognized, if they are fully recognized, if other reps (or a partner) helped close the deals, if special projects should provide quota relief and on it goes. How you manage the conflict (CEO or VP Sales) tends to dictate how much conflict you will have as a regular part of running the business.
Some basic conflicts that can arise include:
- Is the deal booked in the quarter? Sometimes a rep closes a deal but Finance ends up saying it can't be booked in the quarter for a variety of reasons, most commonly the lack of paperwork to confirm the deal, or perhaps goods were not shipped on time.
This is a hard one but often holding the line is the right thing to do. Reps should have a clear understanding of what it takes to book a deal in a sales period and Finance should be working hand-in-hand as the period comes to a close to make sure all the steps are being taken to book what is needed. The consolidation is the deal gets booked at the start of the next period getting the rep off to a good start -- but if they missed the target as a result of the delay, their compensation is affected which is where the conflict arises. Hold the line on this one.
- The deal crosses territory boundaries, who gets credit? Territory definitions should be unambiguous but where a deal is coming from if often not, especially for larger companies or those operating multi-nationally. For example, a large company might center all of its IT purchasing in one cost center location but use the licenses somewhere else in the world. The remote rep works the deal given proximity to user, but another rep manages the central cost center location, perhaps a large account rep.
You can resolve this a variety of ways including offering to compensate both but the precedent is challenging to manage downstream. The remote rep should likely have known purchasing was centralized as this is an important element of closing a deal -- when not known, it sometimes turns up as a last minute reason to miss closing the deal in the sales period (a.k.a. forecast error). You could allow this one a few times but once you feel everyone knows the ground rules, you should stick to them.
A second way to resolve it is to split the compensation 50-50, or perhaps 75-25 in favor of the rep who did the majority of the work. If the sales cycle steps are properly defined, you can assign a workload measure to the deal split.
- Is full sales credit provided for non-standard payment terms? It may seem natural to want to tie compensation payout to arrival of cash from the customer but that often is an impediment to sales incentive unless the rep is responsible for collections which is unusual. The rep did the work to close the deal and should get paid. Finance is responsible for collecting and managing cash flow.
It's not uncommon to defer a portion of the sales credit to match the payment terms if the terms are non-standard. Normally the rep ends up having to do some work anyway to get the deferred payments made so it's valuable to the Company to have the rep want to do the work. Customers can withhold payments for priority service issues, so the rep does end up being involved. If the rep offers non-standard terms without prior approval, hold the line.
- The rep exceeds discounting authority but closes the deal. What do you do? This is a clearer issue that talks directly to the heart of the sales model and playbook. Discounting authorities should be clearly defined and the rules stringently adhered to. As CEO or VP Sales, you do not want reps to use discounting as the way to win the deal -- the value proposition of the product is the core method for creating a buying desire. Discounting comes into play as a last resort, especially in highly competitive situations, but even then you have to protect the street value of your products.
You can respond in a variety of ways -- dock the rep to offset the extra discounting (a bit draconian but gets the message across), don't give full quota credit for deals with non-standard discounting (hurts, but fair if the rules are known), cancel the deal to protect product value (ok to do a few times but not too many). In the latter case, if the CEO or VP Sales steps in by contacting the customer and explaining the errors of the rep, sometimes you can figure out a way to get the additional money from the customer. A good thing to try is to sell additional years of maintenance or consulting services.
Keep focused on creating clear compensation plans that fully outline the use cases you believe would occur in your business. They do not have to be written into the actual plan document of each rep (although that is better), but they should at least be clearly known by all participants. When conflict arises, make sure resolution occurs quickly or you risk undermining the enthusiasm of the team (conflict spreads).
Advanced Conflict
If we look away from pure compensation issues towards how the overall sales model is structured, we can identify some additional areas where sales conflict can occur. The following highlights some of the key areas to be aware of when structuring the overall sales model or go-to-market plan for a product:
- in a mixed sales model (direct and indirect sales channels), how are deals handled when a partner closes a deal with a customer a direct rep is also working?
Measuring total sales opportunity in a territory is a challenging one. Ideally all territories are chosen based on their potential to generate business so that all reps have an equal chance of reaching their targets (you could alter targets to match territory potential which is not uncommon but does impact how you structure compensation across the team fairly (e,g, a dollar is not a dollar any more)).
As such, if a deal is taken by a partner, it in theory reduces the potential for that territory. Reps often want quota credit for all deals in their territory no matter who closes them -- a fair approach on the whole. To have it also pay out fairly, you might want to tier the amount of credit given in favor of deals the rep does directly, paying less for deals partners work. There is lots of variability on this especially if the rep ends up being involved in the deal -- most want to. Mixed models can only work well if this type if issue is managed properly as the rep should have some incentive to see partners be successful in the territory.
- how will partners react to direct reps selling in their territory?
The opposite but essentially the same as the above point. Partners who sign up to carry a product line don't want to loose business to the supplier. It's natural for young companies to want to, need to, be involved in the deals partners close, especially if the partner is not really all that self sufficient. But sometimes the customer will use the partner during the early stages of the sales cycle but want to have the business relationship directly with the supplier. Conflict arises as the partner wants some credit for the win.
In this scenario, deal registration might come into play. If the partner announces their involvement in the deal, they protect themselves against other partners and the supplier from stealing it. Assuming they register and actually work on the sale, they are entitled to some form of compensation. If you don't handle this well, partners will want to look for other products to carry as they waste their time trying to manage the impact of this conflict.
- how are large deals split when regionalized teams manage a portion of a large account?
A multi-national signs a global license for your solution. The team is regionally structured. Does the team managing the HQ location get full credit for the deal or is the deal split amongst the territories on some proportional basis? Are each regional team involved in selling the deal -- which helps define how sales credit might occur?
Assuming this is not a representative deal (in which case you should plan the rules around this), you may have to offer some double compensation. Given the deal is probably an exception, putting people over their targets, there should be some extra money to go around in the budget. Nonetheless, this type of 'success' is something to plan for. You should be looking for this type of conflict during forecast reviews so that you can discuss the compensation issues in advance, making sure people are clear on how they would receive credit (or not) if the deal closes. Perhaps you bonus people who help with the deal regardless of their role or territory but only give quota credit as the plan defines it (e.g. the location where the contract signed gets the credit). You should avoid trying to align with where licenses would be used as this rarely proves efficient or even correct over time.
Testing for Conflict
As mentioned above, conflict is best avoided through clear definition of the compensation plans and the rules of engagement that surround them. You can test in advance for conflict by following the same principals as software development testing -- define the use cases and have someone run through the plans simulating what they can (choosing someone from Finance is a good resource to use) to see what the results would be.
Key use cases to consider include:
- deals that cross territory boundaries
- reversal of a deal and how it affects compensation
- boundary conditions for accelerators
- total compensation matches budget if everyone on target
- total compensation is reasonable if everyone over target (e.g. accelerators are properly formulated)
Putting some payout examples in the plan itself is a good practice. This way all reps understand what the rules of the game are and ideally what to expect when conflict is a potential.
Healthy Conflict
Some conflict can be healthy. Having multiple reps work on a large account competitively can be ok. It forces them to focus on the opportunity properly although you want to make sure one rep does not sabotage the others reps (same if a partner is involved).
Sometimes you may need to assign the best rep to work on an important deal regardless of the territory issues. Some learning opportunities are probably at play here so the assigned rep should work with the other rep to see how things should be done.
The best is simple and plain competition between reps for short term incentives. It's not conflict as much as it is healthy competition. Keep on eye on things, review forecasts, talk to the reps and things work out.