Using bottom-up goal development integrates personal and corporate goals.
Goals set independently by the owner of a home furnishings store are often quite different from the collective goals of the salespeople (the sum of their individual sales goals) who must achieve them. For example, an owner might set a sales goal of $3 million. When, however, each salesperson is interviewed to determine exactly what they're planning to sell, the sum of these personal goals might add up to only $2.6 million. Common sense dictates that the store is going to reach $2.6 million and not a penny more, even if the owner is highly motivated to reach $3 million. This is an excellent example of the problem with top down goal development. The proper and most accurate way to develop goals, of course, is from the bottom up. But even when stores employ this approach, there are many different variations; some better than others.
Retail managers often view goals as quotas, instead of what they should be... targets at which efforts can be directed to achieve a desirable end. When salespeople are asked to give their goal for a particular month, they often ask , "Are you looking for my goal or the store's goal for me?" implying that they have two different figures in mind. When faced with this situation it is inevitable that each person's personal sales goals will be in conflict with the goals that the store has set. Again, the resolution to this dilemma is to use a bottom up goal development process. That is, find a realistic personal goal for each salesperson, and add all these goals together to determine a realistic and achievable goal for the store.BOTTOM UP GOAL DEVELOPMENT:
Bottom up goal development begins with a one-on-one meeting between the sales manager and salesperson. The process involves four steps, each providing valuable information to both the salesperson and the manager.
- Step 1: Determine the income the salesperson would like to earn over the next year. For example, $27,000.00.
- Step 2: Divide the annual income by your store's average commission rate. This yields the annual sales volume the individual needs to sell to reach his or her desired income level. The commission rate should be an average overall rate that includes the effect of spiffs, fabric protection, or other commissions. Average commission rate can be computed by dividing your total store's sales into your annual sales payroll. The resulting figure is revenues paid to salespeople as a percentage of sales, or your real commission rate. If you pay a 5% commission, your real rate would probably be in the neighborhood of 5.5%. In our example we would divide $27,000.00 by 5.5% to get an annual sales volume of $490,909.00.
- Step 3: Divide the salesperson's average ticket over the last six months into annual sales volume. This gives us the number of sales that individual has to make to reach his or her sales volume (based on his/her current average sale). In our example we would divide our salesperson's average sale, let's say $835.00, into $490,909.00. We find out that she needs to make 588 sales to reach her target volume.
- Step 4: We determine the number of ups the sales person needs on average per month to achieve her goal. To do this, simply divide average monthly closing rate into the number of sales from step three. Based on an average closing rate of 28% our sales person would need 2100 ups over the course of the year or approximately 175 ups a month.
If it is unlikely or impossible that the salesperson will receive the number of ups determined by the formula (e.g. the formula calls for 175 ups a month but she is only likely to receive 140), then we know in January that ups are not going to facilitate the achievement of the goal. In order to reach her personal goal (desired income level from step 1), the sales person would need to increase either her average ticket or her closing rate. This is the point where sales people realize that average ticket and closing rate relate directly to what they want to achieve in life. When they make this breakthrough, it becomes much easier to motivate them to work harder and improve performance in the areas that will give the store the best return on investment - namely average sale and closing rate.
Companies that do not know average ticket and the closing rates for their sales staff can only 'shoot in the dark'. This again emphasizes the need for your sales manager to be on top of these measurements. We are simply practicing the art of wishful thinking when we dictate goals from the top down and ask people to accept these goals without the facts, evidence, and logic to support them. It is simply impossible to develop realistic goals that are not based on the specifics of average sale and closing rate.
FISCAL YEAR VS. CALENDAR YEAR: Many managers and owners base their goal development process on the company's fiscal year instead of the calendar year. This is unrealistic for what may not be an obvious reason, the W-2 Form. Most salespeople look at their W-2 at the end of each calendar year to judge how close they came to reaching their annual income goal. The goal development process should take advantage of this pervasive characteristic of human nature. Fiscal years are for accountants.
There's a huge psychological advantage to kicking off goal development January 1st rather than at the beginning of company's fiscal year. When goals are based on the later, it becomes difficult for the sales people to follow their progress. They judge their income based on the calendar year and, in doing so, they develop their own goals based on the calendar. When this happens we again have salespeople running simultaneous goals that are often different from the company's goals. Mathematically they should not be different at all. It is understanding this aspect of human nature and the way people are motivated that makes the need for goals to be developed for the calendar year essential.PERSONAL GOALS:
Most sales managers I encounter have no idea why salespeople place an importance on achieving certain personal sales or income goals. To be entirely effective, the goal development process must ask not only "How much money do you want to make this year?" but "Why is this figure important to you?" The answer to this question then becomes a major motivational tool.
For example, when sales managers see salespeople neglecting the things they need to do to be successful (e.g. making their phone calls, writing thank you notes, etc.) they typically try to brow-beat them into action. Unfortunately, this management style usually results in resentment. This is never ending, like a parent trying to get their kids to keep their rooms clean. The sales manager becomes more of a nag than a partner in the salesperson's success.
If, on the other hand, you know everyone's goals and their personal significance, you can use them to influence salespeople's actions. When Lou isn't doing the things necessary to achieve his goal you simply ask if his goal has changed. If it hasn't changed then you can ask why his behavior has. Now, the sales manager is leaning on the salesperson for the achievement of the sales person's goals. Rather than playing the role of brow-beating parent, you must become a friendly force interested in helping your staff achieve their personal goals in life. This is, after all, why they work for you.
DEVELOPING GOALS FOR NEW HIRES: Another often poorly executed area of goal development involves new hires. Many sales managers expect newly hired salespeople to sell as much as veterans during their first month or two on the floor. This is often based on the sales manager's belief that the new hire can and will reach that volume. You must be careful, however, not to set new salespeople up for failure early in their careers. It is far better to reduce the goal significantly during the first few months and let them achieve success early.
If you want the salesperson to be selling a minimum acceptable standard of $30,000.00 by her third month, then set her first, second, and third month's goals at $10,000.00, $20,000.00, and $30,000.00 respectively. Even if you as a sales manager are convinced that the salesperson will sell $25,000.00 in the first month, it is a good idea to maintain a first month goal of $10,000.00. Salespeople should be set up for success, even if the figures you set are unrealistic in the very beginning. Halfway through the first month, if they do achieve the $10,000.00, you then have an opportunity to laud them with praise. This reinforces their decision that your store is the right place work.
The next month's goal will be higher and the third month's, still higher. However, if the salesperson exceeds her goal the first month and second month, the chances are far greater that she will at least reach her goal (the minimum acceptable standard) in the third month. It is true that success begets success. Salespeople who are given goals that are too high during the first few months of employment begin to feel like failures before they've even had a chance to succeed. By setting unrealistically low goals for the first two months you can give new salespeople a great start viewing themselves as winners.RECONCILING COLLECTIVE GOALS WITH STORE GOALS:
When you base goals on achievable results for both average sale and closing rate as a step toward the volume goal, you can closely pinpoint the store's projected sales volume provided traffic estimates are maintained. However, when the collective goal does not add up to the goal the owner has in mind, the sales manager needs to look very closely at closing rate and average ticket. If the closing rate goals and average ticket goals for each salesperson average out to the sales manager's goal for both measures, then the problem is that the store does not have enough traffic. The only way to reach the owner's volume goal is to revise the advertising schedule. If the owner isn't prepared to boost traffic levels, he must be prepared to adjust his thinking about sales goals.
The exception is when the closing rate and average ticket for the entire sales staff do not, by themselves represent an acceptable increase. In this case, the sales manager has the task of finding out which salespeople are under performing. Poorly performing salespeople can easily cause the company to burn through more traffic and still not achieve its goal. Once the sales manager has pinpointed the low performers, he needs to adjust their goals (again to a realistic level) and help them improve their sales skills so they can reach their goals. By pursuing this course, you not only improve the success of the company, but also improve the success ratio of various staff members, and their self confidence.
It is the sales manager's role to find out what each salesperson wants to earn and why. Based on that information, individuals can be given a road map which will help the salesperson achieve his or her goals (specific information that allows salespeople to track their progress and improve their skills). Next, the sales manager needs to apply his wisdom to determine whether the goals are achievable and/or aggressive enough, taking into account adjustments to average sale and closing rate. He may believe that a salesperson is far more capable than the salesperson believes. In this case, the manager should provide a vision based on reality that illustrates that the individual can in fact achieve her goal.
A great way to provide this vision is to compare the salesperson's average ticket and closing rate to the average for the store. If a number of other people are currently making daily achievements in average sales and closing rate that are greater than the person in question, the sales manager should be able to easily convince her that she is capable of more. Once they've agreed on the true goal for the salesperson, the manager is in the position to make sure that the salesperson does the things that will allow her to reach her goal.
Ted Shepherd foundedShepherd Management Group a company specializing in changing the selling culture of furniture stores from merchandise-driven to customer-driven using an intensive hands-on process of consulting, training, and mentoring. For more information on the topics in this article contact firstname.lastname@example.org.
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