U.S.
businesses spend $800 billion annually on sales force compensation and another
$15 billion on sales training. Yet the backward-looking metrics they rely on
(such as revenue generated) to gauge the impact of this spending provide
limited insight into how a salesperson will do going forward and what types of training
and incentives will be most effective. As a result, many companies misallocate
sales force investments. The authors worked with data from a Fortune 500 B2B
software, hardware, and services firm to develop a method for measuring reps’
future profitability. The metric, salesperson future value (SFV), is the net
present value of future cash flows from a salesperson’s existing and
prospective customers minus the costs of developing, motivating, and retaining
the rep. The SFV analysis revealed that the firm had been overvaluing poor
performers and undervaluing stars. Using the SFV calculations and data on each
rep’s prior training and incentives, the authors segmented reps according to
whether they were motivated more by training or by various incentives. The firm
then increased training for some reps and increased incentives for others, thus
achieving an 8% increase in SFV across the sales force. The firm also increased
its investments in high-SFV reps and reduced investments in low-SFV reps—a
reallocation of resources that increased the firm’s revenue by 4%. [ABSTRACT FROM AUTHOR]