Compensating Your Sales Force The Smart Way

How is your sales force performing?  How could that performance be improved?

Whether your sales team exceeds expectations or needs a boost, the structure of their compensation package has a significant influence on performance.  This month, we talked with David Cocks, co-founder and President of CompensationMaster in Charlotte, for his strategies to create an effective compensation plan.  Use these techniques to offer compensation that motivates the sales team and encourages the desired behavior and results.

1.  Create and stick to a written vision statement for your company. Compensation practices must support the owner’s vision of the business now and what it will be in the future. A vision statement gives employees a clear understanding of the company goals and management will have a common focus.

2. Compensate based on perceived value, rather than giving a standard compensation package. Many recent college grads don’t care about retirement and health insurance. Married people with a family want stability, flexibility, and benefits. Empty nesters want vacation and health insurance. Compensate fairly but structure it to match the value perceived by the employee.

3. Be bonus heavy and lean on salaries. We have several companies who survived lean times by keeping salaries and overhead low but using bonuses to share the success when profits were plentiful.  There’s a benefit for sales staff, too: losing bonuses hurts less than salary cuts.

4. Stagger payment of bonuses based on hire date, quarterly incentives, or behavior.   Too many companies delay bonus payments for all staff members to year end, resulting in a huge cash burden. Bonuses can be seasonal, quarterly, or offered throughout the year.  The latter allows you to even out the company’s cash flow while rewarding effort.

5. Base each salesperson’s compensation on the company’s margins, not on revenue.  Margins are the key driver of profitability.  What good is a salesperson who sells unprofitable work, or a team that doesn’t generate profits?

6. Time compensation to cash collected, not sales. There’s no point in rewarding a salesperson for an account that doesn’t pay.  I have a friend who sells and leases heavy equipment. His compensation is based on profitability and collection. Each 30 day period the account is outstanding results in a reduced commission percentage until 90 days when he forfeits the sale. Yes, it sounds pretty strict but I’m willing to bet collecting accounts receivable isn’t a problem for this company.

7. Provide support staff to the sales team so both can do what they do best. Cocks told us of a client where  one sales professional spent 2 days a week completing paperwork at his company.  That’s 2 days a week,  40% of the work week not spent selling.  It was easy to calculate the cost of the lost sales time.  Through Cocks’s guidance, the owner discovered that the salary for an administrative assistant to handle paperwork for three salespersons was well worth the cost.

8. If you have “house” accounts, end that practice.  Assign each customer to a sales person who is responsible and compensated for that customer. Too often, business owners try to skimp on paying commissions by calling pre-existing customers “house” or “corporate” accounts. Yet these same business owners expect sales staff to service them without getting paid. No wonder these customers go elsewhere.

9. Make sure your sales staff has incentives to sell all year long and not hoard orders for the next sales period. Cocks tells the story of a sales professional who hadn’t really worked in months because he wouldn’t get paid much more during the rest of the business’s fiscal year. In a couple of weeks the new year would start.  He would turn in numerous “pent-up” sales and be that much closer to his new year goal and more commission. The ruse makes no sense for the business, but that’s how the owners set up his compensation plan!  Does your compensation plan encourage your sales staff to sell throughout the year or allow them to game the system?

Before the start of a new year is an ideal time to look at your compensation practices.  Lucrum Consulting stands ready to help you make 2014 your strongest year ever.  Whether you need to examine your cash flow, profit margins or another issue, let us know how we can help.