Cogent revamps sales as productivity sags
Cogent Communications is making sweeping changes in its sales force to reduce churn and boost productivity following the lowest quarterly sales productivity numbers in the company’s history.
Productivity was down 10% in the first quarter from the last two quarters and down more than 25% from Cogent’s peak performance in the past.
Also, turnover in the company’s sales force, which is essentially a telemarketing operation, was higher than normal in the first quarter, reaching the high single digits. Just 40% of the sales force met or exceeded their quotas in the quarter.
Cogent hopes to remedy both issues with a series of initiatives already put in place. The Ethernet service provider plans to add sales staff and adjust their training. It has also instituted new retention bonuses for relatively new reps that are meeting their quotas and has shifted bonuses to be based on gross margin rather than revenue numbers.
“We’re looking at an addressable market in which less than half of the market has been contacted,” said Dave Schaeffer, Cogent’s CEO. “Sales continues to be a bottleneck.”
Cogent ended the quarter with 190 sales reps, two fewer than it started with. And the number of full-time equivalent sales reps dropped from 160 to 150 in that time. As of May 5, the number of sales reps was up to 198, and the number of full-time equivalents was up to 173. The company hopes to raise that number to 240 by year’s end. Cogent now has three recruiters whereas a year ago it had just one.
Cogent’s sales force has three tiers, all of whose members generally make about half their pay from a base salary and half from meeting quotas. Entry-level reps average about $80,000 per year (with a base of $40,000), mid-tier reps average $95,000 and senior reps average $140,000.
The new retention bonuses Cogent has administered are intended to stem defections at that lowest tier, which seems to have the highest churn. The bonuses would raise those workers’ base pay from $40,000 to $45,000 after six months (assuming they meet their quotas), $50,000 after 12 months and $55,000 after 18 months.
“It’s the reps that have been here 6 to 12 months that are hitting their quotas but perhaps feel a bit stressed by the continued activity level,” Schaeffer said.
Part of that stress might result from Cogent’s dogged insistence on a stepped-up pace for the initial ramp-up of its new employees’ productivity. While most of its competitors generally say it takes six to 12 months to bring a new seller up to full productivity, Cogent says it typically aims for 4 months. And that pace won’t change, Schaeffer said. “If we lengthen the ramp cycle, would we materially improve retention? Yes, but at a lower level. It’s not like, with an extra month or two, a rep who wasn’t making it would make it.”
Cogent is also changing the bonus calculus for its existing sales staff so that bonuses are based solely on gross margins rather than revenue. The reason for that is that the revenue targets led salespeople to focus unduly on off-net, as opposed to on-net customers, where margins are only half the size. Revenue from off-net customers increased 0.3% sequentially in the first quarter, while on-net revenue increased 5.7% sequentially after having grown 7.6% in the previous quarter.
“It’s a very large addressable market,” Schaeffer said of Cogent's off-net business. “Reps have found it easier to hit their numbers…with the off-net product.”
As a result, the average revenue for on-net customers has decelerated, Schaeffer said. “The additional bonuses will help us improve not only unit productivity but average selling price…so people can meet their quota both by selling more units and also by selling at a higher price.”
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© 2013 Penton Media Inc.
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