Q4 2009 Inside Sales Compensation Report

Survey Background

2009 was an unprecedented year for the US economy. Succeeding, growing, maintaining customers and employees, and selling products and services in a recession proved to be difficult challenges for all types of corporations across all industries. As our customers set out to develop their 2010 plans, we wondered what their sales organizations had experienced in 2009. What is on the minds of top sales leaders? Do they have the right strategies in place? Do they have the right talent? Were reps achieving their goals? As we do every year in the fourth quarter, Phone Works conducted an online compensation survey of inside sales professionals working primarily in business-to-business (B2B) technology companies. The profile of the companies responding to this year’s survey follows:

The number of total employees ranges from under 50 to over 5000; nearly 50% of our survey respondents have 50-500 employees.
Annual revenues range from <$1m to >$1b, with more than 50% between $1-100m, and 35% between $100m-1b+.
More than 80% of survey respondents are in the High Tech and/or Software industries.
The sales price of their products and/or services ranged widely, with a low of $60, and a high of $50m, but an average range of $17,200 - 2.4m, and overall average order size for all deals of $96,600 (including Field Sales).
71% of respondents have responsibility for the Sales Development function.
For those companies who sell Software as a Service, 17% sell perpetual licenses, 27% sell subscription licenses, 44% sell both perpetual and subscription licenses, (up greatly from last year’s 24%), and 12% sell neither.

For companies that sell products by subscription, the average deal size is most likely to be expressed as one-year subscriptions (66%), virtually identical to last year’s findings.

You can read more about our survey respondents in the last section of this article, “About the Surveyed Companies.”

2009 Sales Development Compensation Findings

Sales Development refers to groups and representatives that contribute to sales by generating and/or qualifying leads (or appointments) to keep the pipeline full. They do not close deals. Our respondents’ other names for this function include: Inside Sales, Lead Development, Lead Generation, Business Development, Sales Development, Deal Development, Inside Marketing, Corporate Sales, Account Development, and The Demand Center.

The Sales Development function reports into Sales in 63% of companies, down significantly from last year’s 88%. The function reports into Inside Sales in 33% of companies and into marketing approximately 30% of the time (the question allowed for multiple responses).

A key finding is that compensation in Sales Development dropped in 2009 for both Representatives and Managers. For representatives, base salary saw an 8% drop and a 9% drop in total compensation. Similarly, Sales Development Manager salaries were down 10% and total compensation continued to drop for the second year, now $134k, down from $147k in 2008 and $153k in 2007. Our perspective is that this drop may be temporary, and is likely attributable to the state of the economy. Simply put, more people are looking for jobs. And, companies can acquire the talent available in the market without needing to pay what they may have previously been paying in order to attract that talent. Companies may also be more frequently promoting from within, where even lucrative promotional increases on top of standard Sales Development rep compensation plans may result in lower total compensation packages than when hiring Sales Development managers from the outside.

Title	Base Salary	Total On-Target Earnings
Sales Development Representative	Average: $51K	Average: $79K
Sales Development Representative	Range: $20-70K	Range: $20-150K
Sales Development Manager	Average: $84K	Average: $134K
Sales Development Manager	Range: $35-145K	Range: $45-200K

The survey data showed us some key sales development compensation trends. They include:

The percent of organizations that base incentives on revenue spiked to 55% for reps, up from last year’s 36%. Quality of leads/conversion rate, appointments set, and number of leads also remain strong factors influencing variable pay (see Figure 1).

Revenue (55% - significant increase from 35% in 2008)
Number of leads (53%)
Quality of leads (47%)
Appointments (37%)
Pipeline contribution (34%)
Activities (18%)

68% of companies include stock or stock options as part of their sales development representative compensation packages, down from last year’s 74%, and 71% include stock as part of their sales development manager compensation packages, down from 81% last year.
40% include Quota Club eligibility as a perk for the sales development representatives, almost double from last year’s 23%.

Figure 1: What is Incentive Pay based on?

About the Sales Development Groups in Our Survey

The primary responsibility of the group is to drive leads to Field Sales in 88% of companies, while 44% are responsible for generating leads for Inside Sales and 30% generate leads for the Channel.
Sales Development originates 46% of US revenue in responding companies.
32% of groups are outbound only, while 58% are both outbound and inbound. 9% were inbound only. These trends are in line with last year’s results. Inbound activity is defined as responding to or following up on inbound marketing events and inquiries while outbound is defined as prospecting or cold calling.
The average team size is 7 representatives, down from last year’s 8. This may be attributed to an increase in the complexity of solutions and the difficulty in converting pipeline to revenue in this economic climate. Managers have smaller spans of control in order to coach reps, assist in deal strategy, work on pipeline progression, and closing business. The average ratio of field representatives per rep is also down, now 5 (2008 was 6:1 but up from 4 in 2007). The average ratio of inside sales representatives per rep is 2.5.
69% of sales development representatives are achieving their goals this year, down 5 percentage points from last year, likely an indicator of the current economic climate.
24% have sales development resources offshore; 80% of those resources are employees of the company, with just 20% outsourced resources; all respondents who have offshore resources have representatives in Europe, with other common locations in Asia and India. Offshore resources are measured on similar metrics as US-based counterparts.

Top Challenges in Sales Development Compensation in 2009: Survey respondents stated that the top challenges with Sales Development representative compensation plans are:

Being heavily weighted on revenue where the sales cycles are long and they are not in control of the sales cycle.
Ability to quantify the value add to sales pipeline.
Balancing the volume of leads vs. quality; being tied to field revenue goals.
List quality.

2009 Telesales Compensation Findings

Telesales groups and representatives carry sales quotas and close deals without traveling. Instead, they use the telephone and online tools such as email, the web, and internet-based technologies. Our respondents’ other names for this function include: Inside Sales (most common, by far), Corporate Sales, Direct Sales, Account Sales, Inside Account Executives, iSales, SMB Sales, Installed Base Sales Team, Sales Support, and Service Renewals.

Title	Base Salary	Total On-Target Earnings
Telesales Representative	Average: $56K	Average: $105K
Telesales Representative	Range: $37-75K	Range: $60-135K
Telesales Manager	Average: $94K	Average: $130K
Telesales Manager	Range: $55-130K	Range: $65-200K

Once again, we suspect that due to the economic climate, average salary and total compensation fell during 2009 for both Telesales representatives and managers. Telesales rep salaries were down 21%, and total compensation down 12%. Similarly, Telesales manager salaries fell 9% and total compensation was off by 26%. With good talent available in the market, employers have the opportunity to attract quality candidates at compensation levels that are now below previous market rates.

Trends in telesales departments include the following:

Average quota for representatives is $1.2m (down $500k from last year), ranging broadly with a high of $6.6m and a low of $25k. For managers, average quota is $12m (down sharply from last year’s $29m, ranging from $250k to $109m.
In 56% of companies, representatives are eligible for Quota Club. 50% of managers are eligible for Club.
In 45% of companies, representatives are eligible for a bonus in addition to sales commissions and 26% of managers have a bonus program. Bonuses are based on a wide variety of objectives, including:

Achieving sales/performance goals
Team performance
Pipeline generation
Early renewals
Margin contribution
Consistency
Pre-defined activity metrics
Product revenue goals
Corporate performance
Customer satisfaction

Stock is likely to be included in compensation packages, but the percentages of companies who offer stock to Telesales is down for 2009: 65% of companies consider telesales representatives eligible to receive stock or stock options (vs. 80% in 2008) and managers are eligible for this perk in 72% of companies (vs. 83% in 2008).

Top Challenges in Telesales Manager Compensation in 2009: The top challenges cited about Telesales Manager Compensation plans included:

The transaction “bar”, i.e. passing deals to the field, losing control, and having to prove how Telesales demonstrated value in order to receive quota credit;
Bonuses not based on individual contribution and/or MBO’s;
Fluid targets;
Quota unattainably high, due to economic challenges;
Overlay model/not in control of sales cycles; and
Limited ability to overachieve.

About the Telesales Groups in our Survey

60% of telesales groups are both inbound and outbound (up from 52% last year); 20% are mostly outbound (down from 32% last year).
53% have inside sales representatives only, 27% have a combination of inside and hybrid sales reps, and 20% have a hybrid-only model. Hybrid reps appear to be increasing as an important part of the coverage model. Hybrid Sales Reps close deals over the phone but can travel to visit clients/prospects only when needed, typically once per quarter.
The average size of the Telesales team is 20 representatives (up from 15 last year), with a range of 2-200.
82% of companies report having a field sales organization in addition to Telesales.
The average number of field representatives to telesales representatives is 5, and there are on average 7 telesales representatives to each manager (both are down slightly since 2008), again perhaps reflecting an increase in the complexity of products and services and the difficulty of getting deals closed in this economy, requiring greater day-to-day involvement of the sales manager at the deal level.
Telesales is responsible for an average of 38% of US revenues; 50% of respondents stated that inside sales is responsible for < $10m in revenues, 49% drive $10-50m in US revenues.
The price range of products and/or services sold by Telesales ranges broadly between $60 and $600k.
Products sold via Telesales include: Products/Services 83 %, Subscriptions, including OnDemand and Software as a Service 57%, Service/Maintenance renewals 43%, Education and Training 53%, and Consulting 53%. (Multiple answers were accepted)
For telesales groups selling Software as a Service, average deal size is most likely to be expressed in terms of one-year subscription (75%) and annual quota is most likely to be based on first year subscriptions only (85%).
The average order size of a telesales deal is $23,976, down sharply from last year’s $40,679, which was unusually high (Note: after removing a handful of atypical large average order sizes from the equation dropped the average deal size to $28,000 in 2008). This more reasonable drop may be attributed to higher discounting rates in 2009.
The average telesales cycle is just under 4 months, up from last year’s 2.5 months, perhaps another indicator of the economic climate.
The average number of deals closed per quarter per telesales representatives is 23 (up from 17 last year), with a high of 150 and a low of 3. This again makes sense given the economic environment, where reps need to do a higher volume of lower order sized deals in order to hit revenue targets.

Telesales and the Field

57% of telesales groups in this year’s survey share a quota with the Field, which has decreased somewhat from 65% in 2008. This means companies must clearly define and communicate the team approach both internally and to customers to avoid “channel conflict” and customer confusion over which group is responsible. Whether or not the telesales group has a separate “territory” and P&L, it is important to clearly differentiate what Telesales sells (or contributes to the sale) from what the Field (or a partner) sells. Articulating and measuring each group’s role in the sales cycle keeps internal conflict to a minimum and is best for your customers.
More than 73% indicate that the field is compensated on telesales revenue, a leading strategy in reducing conflict and increasing team-based selling behaviors. This remains a strong trend: 75% of companies in 2008, 63% in 2007 and 44% in 2006 used this approach.

Figure 2: Products and Services Sold by Telesales

Figure 3 illustrates what the key differences are in responsibilities between Telesales and Field Sales. Telesales has seen a significant increase in the following items/responsibilities this year:

Shared quota w/field
Revenue amount
Transaction size
SMB (Small-to-Medium sized businesses) vs. Enterprise Accounts

Figure 3: How is Telesales Differentiated from Field Sales?

Inside Sales Senior Executives

Our survey included a separate section for Senior Manager, Director and Vice President-level managers in Inside Sales, defined as any managerial respondent who had other managers reporting to them in addition to representatives.

Title	Base Salary	Total On-Target Earnings
Senior Sales Leader	Average: $149K	Average: $226K
	Range: $80-225K	Range: $100-450K

For Inside Senior Sales Executives, we found:

As we have seen with Telesales and Sales Development total compensation, on-target earnings for senior sales executives were down 11%. Salaries saw a moderate increase of 5.5% over last year.
65% of these executives have a quota, and the average quota is $75m, with a low of $5M and a high of $250 million.
100% of respondents say that their incentive compensation is at least partly based on revenue, however there has been a significant increase this year in the number of executives who are also paid based on MBO’s (up from 50% last year to 64%) and quantity/quality of leads (43%).
90% of these executives receive stock or stock options.
60% are eligible for Quota Club.
For inside sales executive-level respondents, the average number of representatives in the department is 20 and the average number of direct reports is 3.

Figure 4: Inside Sales Executive compensation is primarily based on Revenue, MBO’s, and Leads

Figure 5: Senior Sales Leaders’ Departments include multiple functions, including Inside Sales

What’s on the minds of Senior Leaders for 2010?

Not surprisingly, senior sales leaders have their hands full for 2010. The top challenges cited by this year’s respondents are:

New customer acquisition (61%)
Year over year revenue growth (55%)
Transforming the sales model (34%)

Figure 6: New Customer Acquisition and Year over Year Growth top list of challenges for 2010

These results validate what we’ve heard from our customers during this recessionary period. Companies are under pressure to deliver growth in 2010, especially when 2009 may be perceived to be a “low baseline” year. Further, they are under pressure to reduce cost across the entire enterprise and meet customers’ growing preferences to research product and services online and make purchases by Web and phone. For sales, combining pressure for growth and cost cutting means forward-thinking companies are restructuring their sales models and transforming sales to include or grow inside sales functions. As Inside Sales professionals and advisors to sales organizations for almost two decades, we counsel our customers to take a hard look at the structure of the sales function, and to leverage the right resource for the right sales activity. In short, success in the coming decade requires implementation of an optimized multi-channel approach. Most often, this will include a Sales Development team that supports the field and other inside sales groups with high quality leads, a field sales organization that focuses on strategic accounts and complex sales, and an inside sales team to deliver a higher volume of sales across the mid-market segment, the SMB space, and at the division or departmental level in larger accounts.

Another topic on the minds of senior leaders is the acquisition of the right sales talent. Despite the high unemployment rates our country is experiencing, there is a constant focus on ensuring that the company is staffed with the highest possible caliber sales reps who understand the new selling environment and are comfortable communicating with customers without being face-to-face. With sales cycles extending and conversion rates increasing, a professional and customer-centric sales approach remains a critical success factor for all types of organizations.

About the Surveyed Companies

The following graphs show an overall picture of the companies that responded to our survey.

Figure 7: Companies’ Headquarters Location

While many survey respondents are located on the west coast, nearly 25% of the participants were located elsewhere, including upstate NY, Boston area, Southern NH, Philadelphia, Ohio, Utah, and Nevada.

Figure 8: Number of Total Employees

Figure 9: What does the Company Sell?

There was significant decrease in the number of organizations that are selling direct only (22% currently, down from 45% in the 2008 study). There was a corresponding increase in the percentage of companies that sell both direct and via indirect channels (up from 50% last year to 70% currently).

Figure 10: Sales Channels

Figure 11: License Approach

More than 65% of those with a subscription service express average deal size in terms of a one-year subscription.

A Few Final Words on Inside Sales Compensation

In conclusion, we offer a few general words of advice, based on the challenges reported and our eighteen years of experience building or restructuring Inside Sales teams for over 300 companies. Keep in mind that the best sales compensation plans are tailored for each function and are designed to support your company’s unique objectives. Call us at 510-749-9073 to discuss your specific needs.

For Sales Development

Pay incentive compensation monthly.
Whether reps are using lists to call from or following up on marketing program inquiries, they should give priority to contacts in their qualified target profile and be held to respond in a timely manner.
Ensure that there are specific, objective guidelines for defining the “divide and conquer” between the field, Telesales and Sales Development groups. For example, the definition and measure of a “qualified lead or meeting” should be agreed upon and documented; roles and responsibilities should be stated in a Rules of Engagement policy statement.
Quota-carrying sales representatives should be held accountable to provide timely and systematic lead follow up and feedback on lead quality.
Quantity and quality need to be equally considered.
Do not over-emphasize revenue if the group has no control over closing deals. It is typically de-motivating.
Objectives and metrics should be easily tracked through processes and systems.
Requiring Sales Development Representatives to track down the leads they pass to Field Sales or Telesales wastes valuable time finding new qualified leads. Encourage rep communications on deal status via systems such as pipeline management/forecasting systems.

For Telesales

Continue to seek out top-notch sales talent.
Structure the plan so that deals are sold by the least costly channel and compensate Telesales for “growing” and passing deals that must be closed by another channel such as the Field.
Telesales is the perfect channel for driving monthly revenue and can help alter the “hockey stick” effect if compensation is paid monthly and quotas are driven monthly.
Balance activity metrics with pipeline progression, so there’s equal focus on quantity and quality.
Align marketing programs with group revenue goals.
Structure the plan to motivate monthly and quarterly revenue achievement rather than over-emphasizing Q4/end-of-year sales.
Put lead generation programs in place before hiring to build pipelines for new reps.
In team models: assign Telesales individual contribution goals they can control and be measured on.
Start-ups without any historic data should consider setting quarterly goals and quotas to give managers the flexibility to correct faulty assumptions or unachievable quotas and keep sales representatives motivated while developing metrics and identifying trends.

Please contact us at Phone Works at 510.749.9073 for more information about this survey.