When Xactly shifted its fiscal year by one month, ending the last quarter on January 31 instead of December 31, leadership wasn’t surprised when revenue spikes also shifted by one month. This shift revealed what we already thought to be true: Revenue spiking is driven by the behavior of sales reps.
Because we know that compensation drives sales reps’ behavior, it makes sense that revenue spikes go hand-in-hand with measurement periods. If you take a look at your own data, you’ll likely find that the same pattern exists at your organization.
Researchers behind a study at Stanford University (my alma mater) used a mathematical formula to plot patterns in sales for several reps. They found that the distances to quota had a significant influence on the sales profile, specifically concluding that sales increased as sales agents got closer to quota.
If revenue spiking is an issue at your organization, here are three ways to control it:
- Spread out the measurement periods. Replace your current quota attainment periods with monthly or year-to-date quota periods. Let’s say, for the sake of easy math, a sales rep has a yearly quota of $1.2 million. The quota for each month is $100,000, with a goal of reaching $100,000 by the end of January, $200,000 by the end of February, etc. Good accelerators are offered for every dollar above year-to-date quota. In this scenario, there is plenty of incentive for the sales rep to meet and exceed the monthly quotas.
- Encourage early action. Offer kickers or accelerators — an extra percentage point or a couple of extra basis points, for example — on deals signed at the beginning of the month.
- Gratify immediately. Use automated sales commission software to easily and efficiently pay reps more frequently. Sending checks at the end of the month for deals signed at the beginning of the month will control end-of-month revenue spikes.
Spikes in revenue are always driven by reps. Control their behavior with an efficient compensation plan, and you’ll control spikes in revenue. It’s that simple.
To learn more ways to control sales rep behavior with compensation, read “Drive the Right Behavior with Automated Incentive Software.”