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One of the most important issues that managers face is projecting from where the firm’s
revenues will come next year and beyond, and then establishing specific goals to motivate
their sales force to achieve those business objectives. While that approach makes sense, far too many managers set themselves up for failure by setting improper, unrealistic or otherwise flawed sales goals. Below are some common ways that managers can inadvertently sabotage the sales goalsetting process, as well as recommended ways that they can mitigate these risks. The effects of these risks will vary based on the firm’s product focus and asset size.
Sales Goals Are Too Broad.
The defining metric for a successful distribution effort is usually based upon the firm’s ability to grow AUM year-over-year. However, some situations call for a more nuanced definition of success than growth in AUM, especially in the short-to-intermediate term. Often, firms don’t
catch on to this need and end up using excessively broad metrics that result in useless measurements of their success, or lack thereof. To establish sales goals with more targets, distribution executives should analyze absolute, relative and peer performance statistics, including comparisons with competitors. Additionally, sales managers must have a strong understanding of how their overall firm fits in the competitive landscape, as well as the level of industry awareness of the products they offer. With this expanded intelligence, sales managers can adjust their expectations based on the average size of recent institutional mandates and the characteristics of managers that institutions have hired for a particular
strategy type. Throughout this process, executives should continually estimate the expected number of searches in the coming 12 months and the percentage of those for which their firm may qualify.
Setting Wrong Expectations for Individual Sales People
Senior management should not underestimate the difficulty of assigning sales goals for individual salespeople. While a sales director’s past performance can give managers an indication of what future performance may be, it is a task that’s fraught with uncertainty. Executives want sales professionals to improve on their performance from past years, but they should be realistic. Sales managers with expectations that are too lofty risk creating frustration and dissent among sales professionals. The most effective sales managers are adept at encouraging good morale throughout their sales teams.
Setting Unrealistic Objectives for New Products
While the industry’s product development efforts are maturing, some of that innovation has not Page 1 of 2 spilled over into how sales goals are set for new strategies. For example,
we have seen cases where management has set the same expectations for inexperienced distribution professionals who are selling new products as they do for a veteran professional doing similar work. Additionally, executives often underestimate the important role that marketing efforts play in helping new funds raise money. Remember, the product has no assets and no track record and starts out with no marketing materials. To succeed, the product will need marketing collateral, a presence in industry databases and performance that can attract the interest of institutions and consultants.
Sales managers should be conscious of the extra effort that salespeople exert to make these launches successful, and give them credit for qualitative skills such as teamwork and meeting deadlines. Management should also praise the team’s overall effort, even if it did not raise any money right away. Conversely, if a firm has a strategy that focuses on an out-of-favor sector, then distribution executives should acknowledge the reality of the situation in their sales targets. Sales managers who spew misdirected anger and frustration at individuals executing an otherwise solid marketing plan are counterproductive.
Overly Aggressive Growth Targets
Finally, far too many managers set excessively aggressive growth targets. As an example, take an emerging firm with a five-year track record that has attracted $250 million in assets under management. This manager hires its first dedicated sales professional because the firm believes it is ready for the next step and is ready for growth. The firm’s target is to double its AUM over a 12- to 18-month period. Distribution executives must consider how realistic it is to think that a firm that has raised $250 million over five years from a highly networked client base can double its assets in 12 months. That is a classic example of an unrealistic sales goal.
Distribution executives must consider metrics other than just AUM when implementing and evaluating effective sales programs and professionals. Sales managers should use realistic goals throughout the sales cycle to enhance the likelihood of sustaining momentum, motivating their sales teams effectively and achieving long-term success.
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