Sales strategy

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Whenever I meet with dealer executives, sales compensation is one of the leading discussion topics. Office product dealers especially want to know what the best compensation plan is for their salespeople. Is 100 percent commission better than 100 percent salary? Is the best compensation plan a combination of salary and commission? Should commission be based on gross profit or gross sales?
 
At the risk of sounding vague, non-committal and, worst of all, controversial, I have two answers for each of these questions: Yes, and it depends.
 
Over the last two years, our firm, Maximum Performance Group, has completed two comprehensive research studies on sales compensation for the office products (OP) industry. The two studies included more than 600 confidential survey responses from both dealer executives and dealer salespeople. In addition, our firm interviewed more than 50 dealer executives to gain additional insights into effective sales compensation plans.
 
We learned that roughly two-thirds of the dealer principals/manager respondents feel that their compensation plan does not assist in obtaining the overall desired performance from their sales team. We also uncovered a large discrepancy between the responses of management personnel and the responses of sales representatives. Forty-two percent of dealer principals/managers feel that their salespeople are largely satisfied with their compensation plan, while only 23 percent of salespeople indicated that they were satisfied with their compensation plans. That is a staggering contradiction.
 
Sales compensation plans
Our research could indicate that the compensation plan is to blame. However, we found a variety of highly successful dealers and most did not employ exactly the same compensation methods. In fact, most of the successful dealers that we encountered utilised significantly different methods of sales compensation. Nevertheless, these dealers are growing and meeting their company goals and objectives. A logical conclusion is that the actual compensation plan, while highly important, is secondary in driving sales effectiveness.
 
There are several critical success factors that, when combined with a proper compensation plan, will lead to sales success. Outlined below are some of the conclusions and best practices we uncovered through conducting our research.
 
Best practices
First, identify specific goals and objectives for your company and then design your compensation plan in a way that rewards both the sales activities and the sales results that support those goals. Sales activities are the specific actions that may lead to a sale, such as number of prospecting attempts, number of first appointments, and number of proposals. Sales results include gross profit dollars, sales revenue, and new accounts opened.
 
Most of the dealers we interviewed which had made changes to their sales compensation plan said they weren’t looking to lower sales compensation expense. Their goal was to adjust their compensation plan so that it rewarded sales reps for the results that were in line with their company’s objectives.
 
Secondly, work with your salespeople individually to create appropriate written sales performance goals and quotas for their key customers and their territory overall. Review the written goals weekly with the appropriate salesperson.
 
Our research found a direct correlation between written sales performance expectations and positive sales results. The study proved that salespeople who have written weekly performance expectations gain more new accounts than salespeople who don’t have written performance expectations. We also learned that dealers with higher sales volume (larger sized dealers) generally have written performance expectations for their salespeople. In addition, there is a faster ‘ramp-up’ time for newly hired salespeople when they have written performance expectations. Finally, we learned that salespeople with yearly sales quotas sold more than those without yearly sales quotas.
 
If you do decide to change your compensation plan, do so only after giving the changes careful consideration. Take time to analyse all the options and the potential implications, positive and negative, of the changes. Most dealers that have successfully made positive changes in their sales compensation plan had to put in a significant amount of time to accomplish the change.
 
Your company’s compensation plan must be straightforward and crystal clear for the salespeople. Our research showed that a significant number of salespeople did not understand their own company’s compensation plan. Also, your internal systems must be able to extract the data necessary to measure and implement the compensation plan without too much extra effort or manual work.
 
Third, senior management must be ‘in touch’ and ‘out in the field’. For example, before making any changes in their sales compensation, the most successful principals/managers made sure that they had a relationship with their key customers and clearly understood the market conditions. Do you as a sales leader know what it takes to be an effective salesperson out in the field? Reasonable expectations on paper may not be so reasonable when you’re out on the street trying to compete in a tough market.
 
Fourth, assess your current salespeople and their abilities to carry out the new behaviours. If new account acquisition is one of your company’s goals, do the salespeople have effective prospecting skills? Provide the training that is needed.
 
Different sales roles may require different compensation plans. It makes sense to develop compensation plans that are based on the contribution of the salesperson. Trying to force one plan to fit all situations does not work, especially when your company is going after multiple target market segments. The size of your target market will determine the set of skills required to be successful.
 
Next, review and assess the salesperson’s customer base. Shift smaller accounts to inside sales or newer salespeople. Many dealers set a minimum monthly sales quota per customer in order for the outside salesperson to receive compensation. This amount ranges from $200 to $500 depending on the goals of the dealer and, of course, on its market environment.
 
Lastly, in our interviews with dealer principals/managers which had made effective sales compensation changes, the one message that kept coming through was communication, communication, communication. They made sure that their salespeople knew what was going to change and why. They clearly communicated the new behaviours that were expected, which activities and which quantifiable results were going to be measured. In many cases, they ran both the old and the new compensation plans for a grace period of anywhere from three to six months to reassure the salespeople that the programme was positive and in their own best interests. After the compensation plan was switched over, the communication continued on a regular basis to remind the salespeople of the specific sales behaviours they had to utilise to maximise the new plan.
 
The bottom line is that a compensation plan does not and should not manage salespeople; instead, sales leaders should manage salespeople!