Imagine you’re the manager of an inside sales team and, with the end of March approaching, it’s time to strategize for the next quarter. Your CEO just handed down an ambitious goal of $1.2M for the coming three months and now it’s time to draw up the plan of attack. First, a quick back-of-the-envelope calculation: you have 5 salespeople and 3 months to reach $1.2M so you’ll need to average $80K per rep per month.
Common sense says you can’t simply throw a bookings target at your Reps and expect them to find their way. Intermediary, more tangible goals are needed to guide their day-to-day actions that will ultimately lead to bookings. So you get to thinking: in the past when a Sales Rep hit $80K in a month, what sales metrics did he hit on a daily basis? You pull up your Activity Report for the last twelve months and discover that on the five previous occasions that a Rep broke $80K they usually averaged over 60 outbound calls per day, well above their long-term mean of 45 per day. Interesting.
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You’re smart enough to know that this is hardly evidence of a causal relationship; this may be, after all, merely a coincidence. But then, you figure, more outbound calls can’t hurt and this could be that intermediary goal you’re looking for to help guide your Reps to $50K. So as April 1st approaches, you prepare to pitch you team on 60 dials a day and $50K a month.
Cut. Full stop.
What could possibly go wrong here? I’d argue there’s a potential snag in this logic. Consider the incentive structures inherent in setting such intermediary targets. Do they align well with the big-picture goal?
Let’s think through the logic here: why do Reps make outbound calls? To qualify leads, pitch the product, and convert leads to opportunities. The incentive here is actually a bit complex: if the target is to convert as many leads as possible, you may incentivize Reps to pass on poor leads to meet their conversion rate target. If it’s Dials they’re after, they may sacrifice the quality of those calls, and undermine their conversion rate to reach the Dial target.
So what is the right target? Fortunately for you, you can bring InsightSquared’s Activity Ratios Report to the table. Now you can take baseline measures of Dials to Demos and Dials to Deals to make sure that, no matter what target you set for your Reps, you can hold them accountable for the quality of these calls even as they push to reach 60 dials a day.
Can you think of other scenarios where a well-intentioned target may twist incentives or distort the natural flow of events? In economics, Goodhart’s Law says, in effect, when we use a predictive indicator as a target, we reduce the predictive power of that indicator going forward. If you listen for it, you’ll hear news broadcasters, managers, friends and, perhaps most frequently, forecasters and economists falling prey for this rationale all the time. So be wary when you hear the age-old story: I think A leads to B, so let’s target A! And bring your InsightSquared reports.