Anatomy of the Million Dollar Producer


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I was listening to Red Sox manager Terry Francona being interviewed on one of Boston’s sports radio stations the other day when I heard him say, “When we get information we try to know what information we are getting.”  Huh?

It turns out that he was referring to the difference between what the statistics tell him and what he sees with his eyes.  The statistics don’t tell the entire story.  A baseball example of that might be the shortstop who leads the league in errors.  If you look at that statistic you might think he was a defensive liability but if you were watching him perform, you might see that he completes all of the routine plays, regularly makes outstanding plays to prevent runs from scoring, and most of the errors were harmless throwing errors that didn’t cost the team runs or games.

Which salesperson would you rather manage?  The salesperson with $1 million in annual sales or the salesperson with $650K in annual sales?  You think I’m going to choose the $650K person, right? Well it depends.  If you simply look at the data, you would choose the $1 million salesperson.  If you also watched them, you might still choose the $1M salesperson.  But let’s look a little more closely at the make-up of their business.

Our million dollar man has just two accounts but they are big ones; one is worth $650K annually and the other $350K annually.  He wins roughly 2 deals a week from those two accounts and he’s always happy, smiling and confident.  The company and the salesperson were both very eager to have these two accounts and offered sizable discounts in order to land them.  The margin on all of this business stands at only 10% and it’s a senior salesperson, earning 30% (of margin) commissions.  So we have a salesperson investing 100% of his time managing just two large accounts that contribute only $70K annually to overhead after commissions. Yikes!

Our $650K salesperson has only been with the company for three years and has 65 small accounts at a 30% margin.  His commissions are 20% (of margin) and he brings in about one small order each week from one of his small accounts.  If you were watching, you wouldn’t think his accomplishments were nearly as impressive as the first salesperson’s.  But this salesperson is contributing around $175K to overhead, more than double that of our million dollar man.  

The differences go beyond the contribution to overhead though.  If salesperson #2 loses an account, there is almost no change to the business.  If salesperson #1 loses an account, it has a major impact on revenue, capacity and cash flow.  Additionally, it is much less difficult to replace a small account than one of those large accounts.

If salesperson #1 were somehow able to leverage those two large accounts and capture business from two more accounts like that, at 20% margin instead of 10%, that might make his contributions more valuable, but only if the average order from the four large accounts doubled or tripled in size.  Otherwise, he wouldn’t have the time to effectively manage twice the workload and the company might have to hire additional workers to handle the volume.

So things are not always quite as they appear.

Do you have salespeople that aren’t profitable, don’t contribute enough to overhead, won’t change what they’re doing and simply aren’t benefiting the company?

Republished with author's permission from original post.


  1. Dave, thanks for a great example that simplistic measurements can lead to less than optimal results.

    But what’s the answer? Looking at it from the point of view of the sales professional on quota, he/she is looking to make a decent income from the effort expended. Larger accounts can be less or more profitable than smaller accounts, when factoring in the cost of sales. Yet they’re important for other reasons and very demanding. So should the rep be paid less because the business is less profitable?

    Sales managers are typically focused on total revenue/making quota, without regard to profitability. Should sales managers be paid in part on profitability?

    Metrics and compensation systems are tricky. I’m curious if you or any other readers have seen more of a “balanced scorecard” approach to paying sales managers/reps, to align their activities better with the company objectives.

  2. Senior executive bonuses (most of the time) are calculated on their ability to generate profits, not on their ability to generate gross revenue. It continues to be a mystery to me why sales teams are compensated for generation of gross revenue versus profitable sales. Other than distribution companies, who have developed elaborate sytems to monitor customer profitablity, given the razor-thin margins with which these firms operate, I have met very few senior executives that can tell me much about the profitability of individual customers or customer segments at any given time. Not to worry: evolution, in the form of growing customer power, will force everyone soon to look at customer profitability and how sales professionals are compensated.

  3. Dave: Revenue achievement is seductive to potential employers. As you point out, there is always more than meets the eye. I’ve met “top producers” who couldn’t sell their way out of a paper bag, and people achieving modest annual revenue who could kick the tail of anyone else’s top producer.

    As with baseball, everyone looks at the “obvious” numbers–revenue achievement, percent of quota, rank within the sales organization. But the book Moneyball described that nuances need to be considered; a player who commits an error had to be in the right position to make the play to begin with!

    At least with baseball, MLB batting average has a degree of consistency. With sales lacking science or a universal standard for “quota achievement,” one company’s 100-percent-of-goal-performer might be another company’s sales force laggard, depending on how challenging the quotas are, and numerous other variables. So why emphasize the “must be 100% of goal requirement,” when it’s really misleading? I don’t have an answer for that.

    One red flag is when I read something like this (which I do often): “I quadrupled sales in my territory in three years, to $10 million.” Singlehandedly?! Really! Isn’t the candidate missing an opportunity to describe his or her leadership skills? What else does that tell you?

  4. This is an issue of sales management. Better stated lazy sales management. Measuring anyone against a single metric is a dangerous deriliction of management responsibility.

    Unfortunately in many organizations, sales managers lack the gumption to challenge those “top producers”. Further, in a recent survey of wholesale distributors, it was discovered that sales revenue per territory was directly related to how long the salesperson had been on board. The theory being: everytime a change took place in the organization – the person managed to weazel their way into account already doing business with the wholesaler.

    Here are some metrics I recommend in my business:
    1) Ratio of old products sold to new products
    2) Time required to introduce new product lines
    3) Gross margin percentage
    4) When Activity-based Costing is available – their ability to bring in high revenue customers.
    5) Marketshare if numbers exist

    Frank Hurtte
    Founding Partner
    River Heights Consulting

  5. @Bob and Steve – Compensation, based on profit, is definitely a useful strategy, but so isn’t something as simple as changing expectations! I like to use compensation and incentives to change behavior and the example in the article would be a good one to try it on. How would structure either a revamped comp plan or an incentive program to change salesperson #1’s behavior?

    @Andy – great points. Those resume claims always stick out like a sore thumb. Make ’em prove it!

    @Frank – thanks for contributing the metrics. We could probably add a few like, appointments with new opportunities, new business from old customers, new accounts/customers/deals, referrals received, etc.


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