Top Quartile v/s Bottom Half – Who You Should Bet On?

Top Quartile v/s Bottom Half - Who You Should Bet On?

Siddhant Shetty

Siddhant Shetty

Senior Business Analyst

Oakland Athletics General Manager, Billy Beane, is upset by his team’s loss to the New York Yankees in the 2001 postseason. With the impending departure of his star players to free agency, Beane needs to assemble a competitive team for 2002, but must overcome Oakland’s limited payroll.

He hires Peter Brand, a young Yale Economics graduate with radical ideas about how to assess players’ value, and they defy conventional wisdom to assemble a team of misfits that go on to win 19 consecutive games, tying for the longest winning streak in American League history.

Moneyball is a classic underdog sports drama. It reaffirms, perhaps, the most profound maxim, that winning is a team effort – something, successful Sales organisations know all too well. But, it isn’t uncommon for companies to accord undue focus on stars.

The much abused Pareto Principle or the 80:20 rule is often cited as reasonable rationale to disproportionately support and incentivise upper quartiles (top 1-50% of the Sales force) to do more. This is prioritised over raising the productivity of the bottom quartiles, with relatively more scope for improvement.

But, does this supposed conventional hold water? Well, we ran the numbers, and it turns out, it doesn’t.

Analysing the top quartile

We graphed a model basis sales performance data for some of our clients over the last 5 years, which shows the business impact of such a method. For quartiling, we considered % quota achievement as the key indicator and assumed cost of a top quartile rep to be 100%. In this model, Q1 (top quartile) reps receive a 30% annual hike versus Q4 (bottom quartile) who get only 5%.

Attrition as a result of this incentive structure is pretty high outside top quartile reps. We have assumed number of reps throughout this timeframe remain the same as new ‘average’ reps are hired under pressure to ensure stable headcount.

As the years go by, incremental cost to the company increases significantly, crossing incremental sales impact. By Year 3 we start seeing that this model actually leads to a downtrend in profitability. It isn’t the Pareto Principle that is at play here, but the law of diminishing marginal returns.

The same is borne out anecdotally, too. Often, top reps are already running at near-maximum capacity and only a few acquire the necessary skills to graduate to the next level. A common sentiment was that the incentives were deemed “unattainable”, and that the additional effort required to increase their sales was just not worth it.

Coaching the bottom half

An alternative method, is to focus on improving productivity of below average reps. Consider a 10% year-on-year productivity improvement with a resultant 10% reduction in churn reduction. Unlike the first model, we see sales momentum picking up and overtaking costs to result in higher profits. Here’s a better view to compare profits across both methods.

As is obvious, there is relatively more scope for improvement among reps in the bottom half. While it may be impossible to up-skill every sales rep in an organisation, identifying those with potential to do better and investing in their improvement should pay rich dividends.

By end of year 5, Model 2 proved 30% more effective on the bottom line vs. Model 1.,

Individual performance is overrated

When it comes to large sales teams, individual excellence demonstrated by the top 10%-25% reps is overrated. Disciplined focus towards improving productivity across the spectrum of reps has a much more significant impact. It is often the case that Sales leaders in most sectors are the ones who have implemented the best processes vs. those who hired a few rockstars.

HBR, in an article titled ‘The New Science of Sales Force Productivity’ confirms the same: “Companies that use a scientific approach to sales force effectiveness have found that reps in the lower quartiles show dramatic improvement, with productivity jumps of 200%.”

It is no surprise then, that we see a dramatic rise in innovation focused at Sales force productivity in recent years. With the rise of data and automation, intelligent tools can help discover opportunities, improve conversions and increase sales at a rate never experienced before.

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