In the investment world, the return you will get in any given time period is far more dependent on the overall performance of the underlying market than the effectiveness of the manager. The absolute return of a portfolio could be very good, while the manager of the portfolio actually performed poorly and vice versa.
It’s for this reason that the investment world is filled with measurements attempting to isolate the actual value created by various investment decisions. One of my favorite is alpha. Alpha measures the “value added” by the investment manager by isolating the underlying risk the manager took to deliver their returns.
What’s true in investing is also true in sales. On a call with one of my clients today, we got into a discussion about the volatility of their market. I shared with him my concern that we may not have adequate information to assess the true effectiveness of our salespeople. Far too much of their performance is dependent on the underlying characteristics of his market.
Think about it. How do you measure your salespeople? All too often it comes down to total sales (or margins, profit, etc.). If a salesperson is up 20% we say that’s good, and if they’re down 5% we say that’s bad.
However, what if the salesperson’s market was up 30%? In that case 20% doesn’t sound so good. On the flip side, what if the market was down 20%? Then being down only 5% could be a hero’s performance.
In this post, I don’t have an answer. Instead, I’m asking a question.
How can we create a “Salesperson Alpha” measurement? What do you do to measure the true effectiveness of a salesperson?