Sales leaders have a deep-seated belief in using stretch goals to challenge a sales force. Stretch goals are correctly credited with guiding effort, promoting innovative thinking, energizing salespeople, and boosting persistence. Many successful companies have lived the virtuous cycle: Sales leaders set a stretch goal, the sales force surpasses it, and sales force morale and confidence gets a boost. But we’ve also seen, with increasing frequency in the last decade, companies set stretch goals that are impossible to achieve. What masquerades as a stretch goal is really wishful thinking or misguided sales goal padding.
When a majority of salespeople miss a goal, it can be due to an unforeseen event, such as a market downturn. But too often it’s because the management team set the goal too high in the first place. This can happen in any of the following ways:
- The aspirations of company leaders are running ahead of market realities. Leaders can set unrealistically optimistic goals because they feel pressure to appeal to investors or because of their own competitive spirit.
- Leaders believe that more-challenging goals lead to higher sales.
- Goals become unreachable as management at each organizational level pads them. As an example, the VP of sales adds 5% to an already stretched company sales goal. She passes it down to the regional directors, who tack on another 5%. They hand it down to district managers, who add their own 5%. By the time salespeople get the goals, they’ve been compounded to more than 15% above the original stretch goal.
When 10%–20% of salespeople miss goals, the problem might be the salespeople. But when most salespeople miss, the problem is their goals.
Unrealistic goals dampen sales in the current incentive period. Once salespeople realize their goal is unattainable, both the quality and the quantity of sales effort diminish. Many salespeople even hold over sales until the next incentive period, hoping those goals will be more attainable, which makes sales for the current period come in even lower than they would have with more reasonable goals. Daniel Markowitz has suggested that unattainable stretch goals are demotivating and can foster unethical behavior and excessive risk taking.
Unrealistic goals create yet another issue that can be even more serious. Top-performing salespeople, the ones your competitors seek to poach, quickly become frustrated with out-of-reach goals, becoming more likely to leave the company. Poor performers stick around. Eventually, management can’t judge which salespeople have potential to become strong performers, as it’s difficult to tell who is missing goals due to a quality or performance issue and who is falling short because the goals are unrealistic. Processes for developing and retaining sales talent break down. The situation gets worse when managers give a disproportionately large share of an unrealistic goal to the salespeople they believe are the strongest performers. Weak salespeople get softer goals, and strong salespeople are not rewarded sufficiently. Strong salespeople observe weak salespeople making more money for less work, and the impact on morale can be devastating. Over time, more good salespeople leave and sales force quality steadily declines.
How do you know when your sales goals are stretching into the impossible zone?
Track historic goal achievement outcomes. Set a benchmark for what percent of salespeople should make their goals (typically 60%–75%). If the percentage making their goals in each of the last several incentive periods is near the benchmark, your goals are probably realistic. But if the percentage is consistently below the benchmark, then your goals likely are too high. Keep in mind that there is a cost to making goals too low. If 100% of salespeople make their goals, there probably isn’t enough stretch to motivate peak effort levels, and you are paying out too much incentive money for too little work.
Check management’s intentions. Determine whether goal padding is occurring, to what extent, and at what organizational level. You don’t want to follow the example of a business services company that severely padded its national goal before handing it down to salespeople. The sales force hit the national goal, but most salespeople fell short of their individual goals. The sales force leader received a generous bonus and the company celebrated its success. But the majority of salespeople did not feel successful, and morale and retention suffered greatly.
Use diagnostics. For example, examine attrition and retention rates by salespeople’s performance level. Classify salespeople into high, average, and low performance segments, and track and compare voluntary attrition rates across the segments. If you experience excessive attrition of high performers in an environment with low goal achievement for the sales force overall, you are seeing the deadly consequences of overstretched goals.
All companies want to challenge their salespeople to be the best they can be, and stretch goals are a great motivator for doing that. But when stretch goals become impossible-to-achieve goals, the result is lower sales, higher turnover of good sales talent, and a weaker sales team.
Copyright (c) 2016 by Harvard Business Publishing. Reprinted with permission. This blog originally appeared on the Harvard Business Review website: https://hbr.org/2016/07/can-your-sales-team-actually-achieve-their-stretch-goals?utm_source=twitter&utm_medium=social&utm_campaign=harvardbiz