Tag Archives: Professional services

New Business vs. Account Management roles in Professional Services

Question and answer format

Question

In professional services, do you compensate differently in sales plans for “new” business vs. maintaining an account to incent the best “prospectors” to develop new business?

Answer

I’d say that the best course would depend on both the company strategy and the way the selling roles are defined. If the strategy is focused on penetration of existing accounts, then the most valuable sales might be those in current accounts (this tends to be true with mature companies who have some kind of relationship already with most of their key prospects).

But for the majority of our clients, new business is very important. You’ll have to be clear about what counts as “new” – a new “logo” (new company name…), a new buying entity (maybe a new division/location in an established customer could be counted as new), a new service offering (generally one that does not replace an older legacy service they have been buying). Generally “new” business (however you define it) takes more time and effort to win than renewal or penetration business, and for that reason you’ll need to reward for it at a higher level in order to keep sales people focused on it.

Another approach successfully employed by companies with enough sales people to do this is to separate “Account Management” from “New Business Sales” so that different people/teams are responsible for those different selling activities. This may not be practical in a small sales force – but once a company achieves enough scale to operate this way it allows the focus of those who love the new business hunt to be where they do their best work, and those who love the longer-term relationships and more nurturing selling role can focus on managing and growing existing accounts. If you do end up splitting the role into Account Managers and New Business Hunters (sometimes called Sale Executives), you will probably want to have different pay plans for those two roles (e.g., quota bonus with a threshold and significant acceleration for over-quota performance for Account Managers; first dollar commission with lower quotas and less acceleration for New Business Sales).

Should the cost of customizing our product be deducted from sales credit?

Customization costs reduce the profit on a deal, and some companies would like to provide incentives to sales people to avoid unnecessary or costly customization. (Of course, some companies’ products are intended to be customized every time, so this would not be a relevant question for them.)

For busiensses that feel sales compensation support is needed to manage the cost of customization, the following approaches are prevalent:

A. Measure sales people on deal margin (rather than the sales value). If you can accurately predict the margin value of the deal, it is a good measure of the value created by the sales person. Many companies avoid this, however, because it results in hair-raising accounting at a contract level and lot of discussion and argument that can actually cut into your sales capacity. But if you can do this in a straight forward way, it is a great way to measure sales people.

B. Reduce sales credit for deals with “excessive” customization– so if a typical deal might include 20 hours of customization work, a similar deal with more hours of customization might have total sales credit (or payment for the deal, which is a little different from reducing deal credit) reduced in proportion to the additional customization work included in the deal. In this example, if the deal were for $100k in sales value with 30 hours of customization vs. 20 typically offered for this sort of deal, then the $100k might be reduced by $1,250 (assuming $125/hour) in recognition of the added cost of the added customization effort.

While either of these approaches will result in compensation-based levers to help manage excessive customizaiton, many companies will simplify the calculation by crediting and paying on the sales value of the deal, but directly managing customization through configuration rules and deal review in advance of proposals.