This content was originally posted to LinkedIn on 7/26/21.
The Sales Leader will get a sales number and they will then need to figure out where that required growth is going to come from. Their sales operations team then constructs a forecast where they look at the prior year as a starting point and subtract out an expected amount of customer churn (retention). They then add the assumed growth from new customers (conversion) to this baseline. Next, they add the historical existing customer growth rates (penetration). This CPR waterfall chart is then presented to the Sales Leader who gets very nervous... there is a shortfall!
Where will the needed growth come from? If the company has a sales team that is responsible for both hunting and farming – generalists – the acquisition and penetration rates tend to be fixed. Generalists have a portfolio of accounts they need to maintain, and they have a certain amount of capacity to hunt. If the Sales Leader wants the team to grow more than the historical average then it is a natural conclusion that they will need to hire more sales reps. In this situation the Sales Leader is faced with a choice: 1) hire more sales reps, or 2) get more productivity out of the existing team. One way that the leader can try to get more productivity from the existing sales team is to specialize them and split the roles into hunters and farmers. By doing this the hope is to gain more sales time and capacity. Is now the time to pull the trigger?
There are significant risks involved with splitting the generalist into a hunter/farmer model. Existing relationships need to be severed from those reps targeted for the hunter role. Farmers will get huge increases in quota with little or no pay increases. There is the risk that some reps will not be happy with this, or cannot make it in their new role and they churn. How does a leader know if it is the right time to do this and if the risk involved in this transition is worth it?
There are some business indicators – some are a bit more obvious while others are a bit more obfuscated. The obvious indicators are usually driven by a change in the sales process, while the less than obvious indicators happen over long stretches of time as the company and market matures.
The Obvious Signs Are Obvious
There are some situations where less thought is needed in the decision to separate the generalist into a hunter/farmer role. For example, the company has invested heavily in a new set of products that requires specialized knowledge and requires a different type of sales process. The existing team is not equipped in this situation to hunt with the new product bag, so a new role is needed.
The most common ‘obvious’ sign that there needs to be a hunter/farmer model is the company transitioning towards a new, high growth market while the legacy market is maintained. The company will pour resources and pay reps more who can access this market while the legacy market gets less. This type of model is frequently seen in high tech industries, and the little value is placed in growing the legacy technology. Sales teams that focus on the legacy product do not get the same premium pay for hunting so little takes place.
Another common ‘obvious’ sign comes from lead close rates. Marketing produces leads from new prospects that are then passed along to the sales team for investigation. However, these leads may have low close rates compared to the leads generated from existing clients. The sales team will naturally pursue the low hanging fruit and focus on the existing clients. The new prospect leads are not investigated, and the company will need to hire a separate team to pursue them. The new hunter roles that are dedicated to pursuing and closing the more difficult new prospect leads will have a high ROI to the company.
Companies may have highly tenured sales reps who have developed deep relationships with existing clients. These reps may find it difficult to transition to a hunting sales process. While there is tremendous value in retaining the tenured rep their market is underserved. It may be necessary to hire a sales rep who can continue to expand the market simply because the company may only have an existing team of farmers.
Sales Leaders usually do not find themselves in the situation where the choice is obvious. More frequently there is a slow decline in productivity and acquisition that can occur over years. The trend may be so slow that no one realizes it. If anyone does realize that productivity is falling, they may write it off as a general industry trend. The leader may not be sure that the hunter/farmer switch is the path to follow, and they need to look for other signs that it is the time to specialize.
The Rumblings in the Distance of Leading Indicators
As a company progresses along the maturity curve there are several key changes that happen. The company started out by paying for all sales, and the rep kept control of the accounts they landed. However, a successful hunter eventually becomes a busy farmer. The farmers will have to protect their existing book of business from competitors so hunting steadily has a lower ROI for the farmer. The only way for the company to grow is by hiring more sales people who hunt, and then these hunters eventually become busy farmers. Here is the problem – there is a ‘hill’ in productivity. As tenure increases past a certain point productivity will fall because the farmer portfolio will hit a limit (and potentially shrinks) because there are only so many accounts a farmer can service (capacity). There are several issues that this causes.
- Growing at 10% over a $1M base of business is much easier than growing 10% over a $10M base of business. If the only way to grow is by hiring more sales people, as the base of business grows you will need to continually hire more and more sales people to achieve the same growth rates. The structure will hit a tipping point and is not scalable.
- Since pay remains steady, the company is no longer getting growth from the variable pay program – see my previous article on how sales incentive is an investment to drive sales growth. The incentive dollars that the company spends are getting a low rate of return because they are not driving growth.
- Contracts tend to be renegotiated over time so the farmer may see drastic swings in margin even while revenue is holding steady.
- Without changes to the incentive program the farmers are being paid at a premium (you paid them at acquisition rates but they are now farming). A change to a hunter/farmer model would most likely increase the ROI of the incentive program and the overall cost of sale.
Another outcome of the company maturing is the ability to extract more value from the customer (the ‘optimization’ phase). This has the effect of increasing the long term value (LTV) of the customer post sale. Companies will increase the LTV by selling the strategic relationship and focusing on services. This will increase the likelihood of a renewal as well as up/cross sales. As the level of interaction increases the rep is pulled more and more into farming activities. The company will naturally reach a point where the generalist role needs to be split into a hunter / farmer because the LTV has increased to the point where a steady investment of sales time is required in order to extract the additional value. This may occur over a long period of time, and the steady erosion in hunting may not be noticeable without comparative analytics.
But what if the reps are not complaining about capacity? Or they are able to both hunt and farm in their patch? There is still the problem of saturated and underserved territories. There may be too much opportunity in the market and the move towards specialization is still the right one. For example, look at your quota sizes compared to industry (there are excellent benchmarking studies available that show not only industry compensation but productivity as well). If your team’s quotas are lower than industry there is a chance that your reps are underserving their markets. If you plot a graph showing the number of deals and average deal size and see large discrepancies where there are a group of reps that have a few large deals compared to a group of reps that have many small deals there might be two different sales processes that are occurring (hunting and farming). This would indicate that a specialization of roles will yield better results.
If you are still not sure then consider taking an iterative approach. Begin shifting the compensation plan by paying a premium for new customers. If you are not able to shift the sales towards acquisition even with more money being paid for the new customers, then the sales team could find the risk of shifting their time towards hunting to be too high. When the sales incentive plan is no longer effective at driving sales behavior it most likely is time to split the generalist into hunters and farmers.