When Good Metrics Go Bad

I have a story about metrics gone wrong.? Really wrong.? This one goes way back to my early sales days.??

I was a technology sales rep, selling to small business customers.? Anyone in sales knows that you get measured on a whole bunch of metrics, not just your commission, because managers have targets for multiple product lines, services, and financing.?

My approach to sales has always been to not push something that a customer doesn’t need, which sometimes went against the goals of the company I was selling for.?

In this case, the item being pushed was leasing.? The company wanted us to sell as many units as we could as leased or financed units, which our SMB customers did not want. ? However, it was a goal from upper management, which came with a lucrative carrot and a hefty stick.? There was a rich SPIF (Sales incentive) for attaching leasing, and a weekly dressing down if you didn’t hit the target number.? My “Lease Penetration Rate” was the lowest on our team.??

As I said, businesses didn’t want it. They didn’t need it. And I didn’t want to push it on them. But I needed to find a way to meet the metric.? I knew my customers well, and I learned what they really wanted was to manage their cash flow.? They had a project that needed them to scale up which required more equipment. The equipment cost would be covered by their new project, but they wouldn’t get paid by their customer for a few months.??

What they wanted was a delayed payment.? They wanted terms, but we wouldn’t offer it to customers unless they spent $100K per year with us.? Not great for small businesses.?

But we actually had a product that fit that.? It was a consumer lending product where the customer could defer payments for 3 months at 0% interest.? They could pay the product off at any point. If they didn’t, they would go on monthly payments.? Most consumers just ended up paying monthly payments.???

But I did something unique.? I positioned it as a 90 day term plan with net 0 interest.? And my small business customers loved it.? So I started selling it that way, and soon my Lease rate was through the roof - from about 5% to 50%.? It was lucrative. I maxed out on the SPIF.? I won the lease rep of the quarter.? I won a trip.??

My manager was astounded.? He was used to chewing me out every week, and in the span of a couple of months I went from the bottom to the top. So he asked me what I was doing.??

I told him, and he asked if I could teach all of the reps to do this.? So a couple days later, I was presenting to a room of 50 sales reps, showing them how to position the consumer product as a business financing product.??

Sales went through the roof! I was still at the top, but every rep had dramatically increased their lease rates. Our financing company and managers were ecstatic. Everyone was making incredible bonuses.? I won the lease rep of the quarter a second time.? I got another trip.??

Then, in the third quarter it all went downhill.??

You see - while we were focused on the metric, and rewarded for meeting it, something really bad was happening.? The reason that the business wanted all of those financing deals was because they would make a lot of extra profit off of the interest on those loans.? Except, now instead of customers staying on and making monthly payments, they were diligently paying them off, just before the 90 day deferral date ended.??

They were paying no interest.? But the business was paying out millions of dollars in SPIFs, bonuses, origination fees, trips, etc. ? So instead of driving the result they wanted, higher profit, they actually got the opposite.??

They canceled the SPIF.? I still won the lease rep of the quarter a 3rd time.? They still gave me a trip, because legally they had to.? But the finance manager was not happy with me.? She was very upset at having to present an award to me.?

I learned that year that metrics really matter.? You have to measure the right things, and you have to build the right metrics to get the right result.? And you have to watch what happens, and look for unintended consequences. ? So now, I’m very cognizant of what metrics are in play with the clients I work with and the startups I advise.??

Have any metric based horror stories to share? Add a comment!?