Show me the money!
Change -- some fear it, some embrace it. But however we feel about it, change is inevitable. Just like death and taxes.
We make changes in our personal lives to reflect new relationships or the discarding of old ones. We make changes to make others happy or ourselves content. We make changes to make our lives better.
As business owners, change is also important, especially in the Internet age. Those businesses that cannot adapt to change quickly will not survive in the future.
One of the most important parts of business to change in the 21st century is the way we sell. And when we change the way we sell, we have to change the way we compensate those that sell.
Traditionally, a company's sales force was compensated on 100% commission based on sales or gross margin. But today's sales force is compensated on more than just overall selling performance; customer retention/penetration and sales of products/services most profitable to the business are also part of the mix.
In addition, new sales channels such as business-to-business e-commerce will force outside and inside sales forces to evolve, notes Michael Emerson, compensation practice manager for Melbourne, Fla.-based Indian River Consulting Group. "The team selling concept is emerging as more and more revenue is generated through inside sales and the Internet. Inside sales is being given much more responsibility as outside sales takes on more problem-solving tasks."
One reason for the change is a need for salespeople to be well-rounded business advisors, not just peddlers, says Jay Schuster, co-author of Pay People Right! and partner with compensation consulting firm Schuster- Zingheim & Associates in Los Angeles.
"Today's salespeople must have the skills to understand the different levels of organizational success," he says in an article published in Sales & Management Magazine. And top salespeople gravitate toward companies that teach them about profitability and working with internal and external business partners.
Commission vs. salaryMany companies are now offering inside sales staff a small commission on sales, while offering a 50% to 70% base salary for their field salespeople, Emerson notes. About 17% of U.S companies use a straight salary plan for their field sales force, while 10% use a commission-only plan.
"Base salary is becoming more of a significant factor in compensating the outside sales force, but it is not the lion's share of the pay package," he says. "A salesperson's mentality is motivated by commission. Salespeople are competitive -- it's not so much a money issue as wanting to be the best. Commission is the yardstick that salespeople use to measure themselves against others."
The lure of commission sales lies in the fact that a salesperson has the control of his success in his own hands, says Leanne Hoagland-Smith, president of Valparaiso, Ind.-based Advanced Systems, an organizational development consulting firm. A commissioned salesperson has unlimited income potential equal to the amount of work put into a customer or a project. A strictly salaried salesperson may start to let house accounts slide as there is little incentive to go the extra mile.
Recognition is what all salespeople are looking for, and gift certificates are becoming the No. 1 recognition tool for a job well done, she says. Some other things to consider when discussing compensation: company cars or car allowances, flex time, day care, job sharing, professional development and self-improvement.
Redesigning the planBefore overhauling your compensation plan, consider your overall sales management strategy. Is it effective? Is your sales force the right size to achieve the goals required of it? Are you providing the right tools for the field sales staff to do the job? Make sure that your sales strategy is in line with company goals.
"When designing a plan, simplicity is always best," Emerson says. "The more you engineer it, the more complicated it becomes and the less successful it is."
Business objectives need to be assessed before embarking on this journey. Use market research to assess your customers and your products, Emerson says. Then determine how to use the outside sales force to gain your business objective.
A compensation plan that truly ties sales reps into the company vision will do more than keep sales reps on board, according to Selling Power Magazine. A highly motivated selling organization can "drive higher sales and profits that could be significant, perhaps 5% or 10%," says Andris Zoltners, managing director and co-founder of ZS Associates and marketing professor at Northwestern's J.L. Kellogg Graduate School of Management.
Next, steepen the grade between the person meeting minimum goals and the superstar. "A superstar's incentive would be five to 10 times more than the incentive of a performer at threshold," explains Patricia Zingheim, a founding partner of Schuster-Zingheim & Associates and co-author of Pay People Right!
All the right targets, goals and incentives won't mean much if you can't pay your sales staff on time. Sales consultant Thomas Wood-Young says cut the check when money changes hands between you and the customer. And pay commissions monthly. While the accounting department might prefer setting up a salary and quarterly bonus system, salespeople have to pay credit card bills, the mortgage and utilities monthly. "Being out of step with basic American lifestyles casts a pall over your plan -- and their attitude."
However, none of this will matter if there is weak sales management in the company.
"Effective sales management is more important than sales incentive design," Emerson says. "Companies that prosper tomorrow will be the ones with the most efficient use of their sales resources."