In the two years I’ve been with Xactly, the end of the quarter and/or fiscal year is a very exciting time. I love hearing the literal bang on the gong and subsequent cheer that accompanies a closed deal. This is the time for sales teams to shine and add to the excitement of hitting our number.
But like many other companies, Xactly included, this celebration happens more frequently at the end of the period, rather than the beginning or middle. While all deals take time to come to fruition, it raises an interesting question: is this something that plagues other companies? And, if so, what do they do about it?
What is the Hockey Stick Theory?
It turns out, this sales spike in performance at the end of a period is more common than you think. It’s a phenomenon called the Hockey Stick Theory. And it’s one that’s inspired many discussions in Xactly conference rooms. In fact, we decided to dive a little deeper to better understand it.
After examining our extensive Xactly Insights database and reaching out to some of our highly trusted partners, we found some interesting trends. To get down to the bottom of the situation, our partners at Salesforce and DXC Technology sat down with Xactly’s founder and CEO, Chris Cabrera.
Nandini Ramaswamy, Salesforce SVP of Global Incentive Compensation, and Brad Gifford, DXC Technology VP of Revenue and Sales Operations joined Chris to share their thoughts on the issue. Here are a few highlights from the discussion and their take on the Hockey Stick in their organizations.
The Hockey Stick at Xactly
Of course, one of the first thoughts that comes to mind with the Hockey Stick theory is: can you eliminate it? Chris Cabrera asked himself that very question when he founded Xactly in 2005. In an attempt to eliminate the Hockey Stick, he shifted the company’s fiscal year out by one month. His hypothesis was that by moving quarters one month out, you’d see more balanced and consistent performance levels throughout the period.
The result? Nothing changed—except that this performance spike was simply moved out by a month. So, in turn, Chris’ original theory was not correct, but it did uncover that perhaps the phenomenon actually has more to do with sales rep and customer behavior rather than how your fiscal year is structured.
So what really causes this performance trend?
There are a number of different factors that influence the Sales Hockey Stick. After examining Xactly data and collaborating with Ramaswamy, Gifford, and other trusted Xactly partners, one that stands out is a combination of sales rep and customer behavior.
Let’s start with customers. Ramaswamy compares the Sales Hockey Stick to car shopping. Consider the last time you bought a new set of wheels. It’s common knowledge that you’ll probably get a better deal shopping towards the end of the quarter or year. The same applies to sales in almost every industry. Buyers know that the best discounts can show up on the table when the pressure to close is the highest.
Budget can also play a role when it comes to customer behavior. At the end of a year, there’s a better idea of how much cash is available. Since many business budgets are modeled after a “use it or lose it” scale, year-end is another time for new purchases.
But it’s not purely customers driving this; rep behavior also plays a role. As expected, the end of a period comes with added pressure for reps to close deals and meet their quotas. So it’s no surprise that deals flood in all at once. Reps are pushing harder to close and get a signature on the dotted line the closer it gets to the end of the period.
Is the Hockey Stick a problem?
It might be more accurate to call the Sales Hockey Stick an organizational burden, rather than a problem. While it doesn’t entirely halt successful business, it can certainly make operations more difficult.
Perhaps the biggest challenge the Hockey Stick Theory presents is that it creates performance uncertainty. For example, “DXC is a services business, so our product is our workforce,” according to Gifford, “and it’s really important that we can predict. Otherwise, the larger this uncertainty [of which deals will close when], it’s very hard to move your product.”
Ultimately, this puts a strain on your wider organization. Sales is variable in nature. You may have a deal ready to close, but that signature won’t come in until the first day of the next quarter. Now the revenue you expected to have this quarter isn’t there, which impacts your workforce planning and forecasting.
That also means your operations, legal, reporting, and compensation teams are shifting direction and every last resource is being squeezed for time. This stress is even more present when uncertainty hits the world outside of your business.
So Now What?
It’s important to remember that the Hockey Stick is not all bad. Gifford notes one main silver lining: your sales reps are even more motivated during this time, which means there’s room for your sales and incentive plans to improve sales performance in the beginning and middle of the period.
Stay tuned for more insights on the Hockey Stick Theory and how you can manage it successfully in your organization. In the meantime, check out more tips from Cabrera, Ramaswamy, and Gifford in their full conversation and Q&A here.