Management By Objectives(MBO) is a way to manage and evaluate sales teams.
However, business environments have become more complex with how sales reps close deals with multiple channels and smarter strategies powered by data analytics. With this, the outputs we evaluate sales reps on have also changed, and it is more than just revenue to ensure that sales teams remain adaptable to market changes.
In this blog, we'll explore the application of MBO in sales and practical tips for implementation. We'll also look at contemporary alternatives that can complement or even replace traditional MBO frameworks, ensuring your sales force remains at the cutting edge of performance management.
Usage of MBO in Sales
Management by Objectives (MBO) in sales involves setting specific, measurable goals for salespeople and then evaluating their performance based on the achievement of these goals. The process typically includes:
- Setting key sales objectives: Manager clearly defines individual and team sales goals. It can include things such as revenue brought, customer retention, pipeline generated. Each can have different weigtage helping reps to prioritize.
- Action plans: Manager develops plans and strategies to achieve these objectives with the team
- Monitoring progress: Everyone regularly tracks progress toward the goals.
- Performance evaluation: Manager assesses performance based on the attainment of objectives with HR.
- Feedback and rewards: Providing feedback and rewards based on performance.
Read about sales performance reviews, quotes and tips
Advantages and disadvantages of MBO in Sales
Here are the common benefits and drawbacks of using MBO as your management framework:
| Advantages | Disadvantages |
|---|---|
| Clear objectives: Provide clear and specific goals for sales teams. Example: Increase subscriptions by 20% within six months. |
One-way: Does not include team in setting goals, and the entire approach is top-down. Example: The team does not get a say in setting or adjusting objectives. |
| Enhanced performance: Improves motivation and performance through goal alignment. Example: Friendly competition among salespeople and increased sales. |
Rigid structure: Can be inflexible and may not adapt well to changing market conditions. Example: A tech startup rigidly sticks to its annual sales objectives even when a new competitor disrupts the market, causing the team to miss out on opportunities to pivot and innovate. |
| Measurable results: Allows for measurable and objective performance evaluation. Example: Set measurable sales targets to track and reward top performers based on their actual sales numbers. |
Potential for gaming: Employees may manipulate results to meet objectives without truly improving performance. Example: Reps can sandbag or push unnecessary products |
5 tips for implementing MBO in sales
If you are looking at implementing MBO for your sales team, here are some tips:
- Set realistic and attainable goals: Ensure that the objectives are challenging yet achievable to keep salespeople motivated.
- Involve your sales folks while goal setting: Engage salespeople in the process to ensure they buy into the objectives and understand their importance.
- Provide regular feedback during meetings: Offer continuous feedback and support to help salespeople stay on track and adjust strategies as needed.
- Align objectives with company and individual goals: Ensure that individual and team goals are aligned with the broader company objectives to maintain strategic focus. Also, try to ensure team members are aligned and that the goals help with their personal development.
- Leave room for adjustments: Regularly review progress and be flexible enough to adjust objectives and strategies in response to changing market conditions.
2 alternative approaches to Management by Objectives in Sales
- OKRs (Objectives and Key Results): The methodology involves setting ambitious and qualitative objectives and then defining specific, measurable key results to track progress towards these objectives.
So, a sales rep will have clarity on the end goal and the steps to be achieved to meet it.
For example,
Objective: Increase sales revenue by 15%
Key results:
- Increase sales calls by 30%
- Upsell to 5% of the customers
Based on the overall achievement with the objective, sales incentives are paid.
- SMART Goals + commissions: Similar to MBO but emphasizes setting Specific, Measurable, Achievable, Relevant, and Time-bound goals. And these goals are tied to commissions. Upon achieving this, they get commissions paid.
For example, a sales target of $1mn, and upon achieving, they get a 10% commission. Commissions are also SMART.
Both of these modern alternatives aims to address some of the limitations of MBO by emphasizing flexibility, continuous improvement, and a holistic approach to performance management.
