Sales Compensation as a Tool – Part 1
You've finally come up with a compensation package that makes sense to you. Then you find a great candidate (Not good, but simply Great!). And they want something different from what you developed.
What do you do now? Do you cave in to the new salesperson, or stick to your guns and risk losing a real hotshot salesperson?
How do you decide what and how to pay salespeople?
There are many different compensation schemes. You have options such as straight salary, straight commission, base salary plus a bonus, a draw against a percentage of the gross sales, percentage of the gross profits, a changing percentage depending upon the amount sold, ramping percentage depending on the amount of margin gotten . . . and on it goes. The combinations and permutations can drive you nuts.
However, with the aid of the following evaluation points, and armed with a healthy dose of good sense, the task of building (or fine-tuning) your compensation package will not be as daunting as it first appears.
Sales Compensation as a Tool
The motive for hiring a salesperson is specifically to increase the company’s gross sales, gross margin and net income, while keeping customers happy in the process. The salesperson’s mandate is to engage in the activities necessary to do that. The goal of your compensation system is to foster, encourage and reward the salesperson for achieving success.
Developed appropriately, compensation may be a very effective tool in support of your sales and business development goals. It also helps to attract and retain salespeople who are the best fit for your company. There are three primary principles involved in the development of a compensation program. They are:
- Structure and Relative Importance of the Sales Effort to the Overall Business Strategy
- Risk / Reward
- Balance for Long Term Growth
1. Structure and Relative Importance to the Overall Business Strategy
- How important are your salespeople to the development and growth of your business?
Sales are always important. When looking at the business strategy of a company, in some businesses salespeople play a larger role than in others. For example, in retail women’s clothing sales, the location of the store, combined with the selection of inventory will play a large role.
In contrast, a financial planner is responsible for not only the sales to the customer, but also the delivery of the goods and services that are sold. Selling skills aside, the development and execution of a financial plan is a little more involved than the process of wrapping apparel, and following up with the customer, which is somewhat the extent of “delivery” needed by a retail salesperson. As a result, it is no surprise that the income levels of these two roles are compensated quite differently.
Any discussion of the relative importance of a salesperson to a company needs to include an analysis of the cost structure of the business.
- Will the addition of a sales rep (with the added compensation that will need to be paid, in whatever form) add a net increase in the profits of the company?
- If so, by how much?
We had one situation with a company providing binding services to the printing industry. The company had grown for years, based upon the good reputation that had been developed over time, from high quality service. However, the margins available to this company had been eroded dramatically in the last couple years, primarily due to the impact that technology has had on the whole printing industry.
To get a professional salesperson aboard would likely cost the company about $50,000 to $60,000 (plus benefits). Yet, the amount of new business needed to fund this person and still generate sufficient profits for the company (at least $150,000 to $200,000 of additional margin) to make it worthwhile, were simply beyond a reasonable expectation for a new salesperson to generate. Much of the "new business" available in this mature market was to continue to make small gains with existing customers.
As a result, it made no sense to bring in an outside sales rep on a full-time basis. Instead, the company chose to hire an inside sales and customer service person, who took a number of the inbound requests for quotation. They also conducted routine outbound service calls to existing customers, to keep in touch with them.
This arrangement cost the company about $30,000 ($24,000 base plus a “spiff” or minor commission for bringing in new business) and turned out to be a more cost-effective alternative than an outside rep. Customer service levels improved substantially and so did sales, by far more than necessary to justify the financial investment.
- What is your business strategy?
- How are your profits structured?
- Where do you gain the largest profits, and how do your sales personnel figure into this equation?
Before deciding on the composition of compensation, you need to be clear on the place salespeople have in your organization, and how they might serve its growth and development.
end of Part 1
Filed under Business Development, Employees, Grow Your Business, Sales Teams by Michael Walsh
Comments on Sales Compensation as a Tool – Part 1 »
bob @ 1:07 pm
The key to turning your organization into a world class operation is to put into place the policies and procedures that made every single person perform like a top producer.
When I worked for billionaire Charlie Munger I discovered the secret to doubling sales and proceeded to double the sales of nine different divisions, all within 12-15 months of taking each of them over.
Top producers go after only the biggest possible clients. Top producers write effective sales letters. Top producers follow up with a vengeance. They send constant promotional pieces depicting more and more benefits of their product.
Most importantly, they never let rejection slow them down. In fact, when rejected, top producers become even more determined. If you can hire nothing but top producers, than you probably do not need to read the rest of this. But if, like me, you're having a constant battle trying to find star talent, than you can follow the formula in this article and dramatically increase sales performance across the board. Even your top producers will perform better using this formula.
You can get profound results in your business if you work on it (rather than just in it) only one hour per week. As long as that one hour is designed to be proactive and you're committed to improving the process incrementally.
If today, you started working on how you get appointments, for example, and you looked to, once per week, make that skill just a little better, within ten sessions (ten weeks) you can have a profound improvement.
In most sales organizations, the sales are ad-hoc, with everyone running around doing what they think is best and the management setting very little or no minimum standards of performance.
For example, what is your standard for what type of account your salespeople should go after? Have you worked "on" this aspect of proper targeting? What exactly are they going to present? What are the top five strategic objectives you want to achieve from every interaction with every buyer (seriously, have you sat down and talked about that, planned that out? Practiced it, role-played it and polished it to a fine luster?)
Let's take "getting appointments." Every week, the sales reps should work on their activity level, who were they targeting, what were they saying, what tools did they have? etc…
For example, we came up with seven elements of what would make someone want to meet with our sales reps? How many of these have YOU developed? How to close more sales? How to find the best buyers? These are all part of a formula for creating the ultimate sales machine. Then you role-play the with your sales team, constantly improving every little word, every sentence. Done right, they will enjoy the process.
One company worked on this for twenty weeks, just one hour per week and went from getting three to four appointments per week to 30 appointments per week with the exact same sales team. We just kept adding more and more ideas and incentives and strategies for getting appointments and each week, made everyone a little better at it. In the "role-plays" we came up with a come back for every put off.
And here's the kicker, all of the meetings that this company got appointments with were all what I call "Dream" prospects. Dream prospects are the big accounts or players. So many companies chase 10,000 clients, when 100 HUGE clients would change their lives. But they lack the devotion it takes to penetrate huge clients. I've personally sold more than 60 of the Fortune 500 my services, and most of them at the CEO level. There is no executive that won't get to know exactly who you are if you go after them every single week.
Now let's work on the client sales call itself. What's the first thing you do when you walk in? What's the second? What are your methods for establishing a little rapport? What are the exact questions you're going to ask and why are you going to ask each one of them? What are you looking to do for every question you ask? A top sales manager doesn't leave any of this to chance.
Then the presentation. What are all the strategic objectives you are looking to accomplish in every interaction with a possible client? How will they be met? What do you want the next move to be? What would be ideal and then what are the five layers of alternatives below if you can't get the "ideal" thing to happen?
The more you can systematize the sales process, the more you can rely on excellent selling going on in your organization.
Another important tip for you: Make your weekly meetings mandatory. That's how you get real progress. Since each session takes you deeper and incrementally builds upon the previous session, everyone must be inn every session. Use teleseminars or conference calls so even if a rep is sick they can attend. I tell my staff that there's only two reasons they miss a weekly sales meeting: Dead or dying. No doctor appointments, no dentist appointments, etc… Make the sales meeting at the same time every week, usually Monday at 4:00 and just tell everyone to plan everything else around that time, because at that time all you're going to be doing is working on the business.
The full formula: Take every aspect of the sales process and bullet it out. Then work on it until you've given yourself at least five alternative ideas for reach area. For step one: "Getting the appointment," we have twenty ideas full spelled out. For "strategic objectives in a meeting with a client, " we have 14. That's why we outsell every competitor we have by a wide margin. And if you're not sure what to work on, here's the best possible tip I can provide: Ask every person to tell you two things: "what's going great and what needs improvement." Plenty will come up that you can work on.
howtodoublesales.com