Evaluating your sales representatives is an important part of your job. As a general rule a sales representative is evaluated on his results: how much he sells, and at what profit for your company.
Define Objectives for Each Territory
How much a sales rep sells on a given territory depends on a number of parameters, such as the size of the potential market, the product adequacy for the market, the level of competition, etc.
Based on these parameters product cost and distribution cost can vary as well. Company profit can be different for the same product sold to two different territories. This means that each territory will be assigned different sales objectives. Having the same objective for all territories does not make sense.
Even if objectives are not the same for each territory it is necessary to quantify them. Representatives must know what they are being assessed on, and what is expected of them. Assigning sales objectives can also be a way of communicating with your sales representative and estimating how much his local market will bear.
Assigning quantitative and qualitative objectives is important to maximize the potential of your sales representatives. Quantified objectives can be a number of products sold, number of contracts, total revenue generated, or total profit generated. Qualitative objectives can include reaching out to new prospects even if it does not generate any revenue yet (this can sometimes be quantified), introducing products to a new industry, participating in conferences and trade shows, or reinforcing a strategic partnership.
Each representative must know the objectives and agree with them to be able to give his best. In an ideal world those objectives would be reachable with difficulty, which means that a hard working successful representative would meet 100% of his objectives.
In reality all managers know that objectives can become obsolete after a few months. Market conditions change, the sales representative can land a large contract that meets all the objectives immediately, or lose a large contract that makes reaching the objective impossible, etc.
For these reasons it is not advisable to have an annual contract that ties a representative to a sales target. It is preferable to have a continuous dialogue to ensure that the sales representative remains motivated to sell your products.
New vs. Established Representatives
Evaluation criteria are different for a new sales rep than for an established one. Do you get along well with your representative? Do you have easy and open conversation? How many new prospects is he reaching out to, and does he have sales opportunities? All these criteria are early signs of future success for a new sales representative.
There can be a ramp up period, presenting your products to a new market can take time. What is the typical sales cycle for your products? Some high-end equipment can have a sales cycle of several years, and you must give a new representative time to market your products before landing the first contracts.
For an established representative evaluation criteria should be simple: how much is he selling and how many new prospects is he getting. Level of sales is the essential parameter; it can be expressed as revenue or profit. And never lose sight of the fact that profit is king. Generating three times the revenue but at zero profit does not make sense.
The second criterion after the level of sales is the number of prospects that your sales representative brings. Bringing new business opportunities is key. Reaching out to new contacts is key. If these are done correctly, and if your product fits the market you will generate revenue.
If your sales representative has a lot of opportunities but a very low conversion rate there certainly is a problem. Identifying the root cause is key: what are the barriers to closing the sale? Do you need to train your sales representative better? Do you need to support your representative in other ways, such as providing sales and marketing material? Should you tailor your product to specificities of the local market?
Results, results, results
Never lose sight of the end result. A sales representative can be very personable, very professional, but if he does not sell he is not useful to your company. You must then determine why results are bad. Do not assume that it is the fault of the sales representative. Most reps work very hard because it is the only way for them to generate revenue for themselves.
If the problem comes from the fit of your products for the market you must tailor the product quickly. Rely on your sales representative to give you insights into his market. You could even ask you representative to give a questionnaire to his prospects to understand why your products are not selling as well as they should.
But if the problem comes from the representative himself you must take steps to replace him. It is generally a difficult step but it is essential to the success of your company. A bad sales representative must be terminated and replaced with a better one.