TOP 6 Tips for Compensating Sales Managers

By David J. Cocks, CEO

Managers should be compensated, at least in part, for their performance – for the degree to which their decisions influence the company and contribute to its success. However, sales force managers have a wide range of duties; some sell, some don't; some own part of the business, while others are employees. Designing incentives that balance all these factors can be a challenge.

The following tips can help you design compensation packages that will motivate your sales force managers most effectively.

1. Base Salary

Start with a base salary that reflects the marketplace value of the manager's administrative duties. For example, if those duties are expected to take up to 60% of the manager's time, the base should be approximately 60% of what a full-time administrative manager in the open market would receive.

2. Overrides

Overrides can be calculated in many ways: on gross revenue, net operating income, earnings of the sales representatives, or profit before interest and taxes (EBIT).

Consider carefully which measure you use. When an override is calculated as a percent of gross revenue, the impact of poor sales is not felt as dramatically as it would be if the override were on net operating income.

Paying on the net operating income also encourages recruitment, and rewards the manager who devotes time to getting sales representatives to the breakeven point. It provides a disincentive to managers who readily give exceptions or cut deals to recruit new reps – the manager's own income is affected proportionally.

3. Task Completion Incentives

Many companies are instituting financial rewards for successfully recruiting new associates, offering training or coaching, or increasing the percentage of productive sales representatives.

Recruiting. If you pay a flat amount as a reward for recruiting, consider a sliding rate relative to the value of the new recruit. Make the payment in stages, as the associate makes sales, to help guard against a body shop operation. Even better, pay when the associate reaches breakeven, as this ensures that the bonus comes from profit built into the breakeven point.

Training. Offering an incentive for training or coaching helps ensure continuous improvements in production. Try paying a flat fee for the amount of time invested or giving a bonus based on the number of associates who complete training programs.

Productivity. Incorporating an incentive for increasing the number or percentage of active representatives encourages motivation of all reps, and helps prevent preferential treatment of high producers.

4. Bonuses

Offering rewards for reaching targeted production levels can be highly motivational. Bonuses might be given for reaching a certain level of revenue or profit each month, or for bringing down the company's expenses.

5. Profit Sharing

You may want to pay a top manager a set percentage of any profits retained by the company over a specified period of time. For this to work, your company should have well-controlled expenses and a generally stable economic situation. The manager should have access to all of the company's financial information, and feel that he or she has enough influence in the company's day-to-day operations to control the factors that affect profitability.

One risk is that relations between the manager and senior management may become strained if the top executives want to make investments that will grow the business at the expense of short-term profitability. For this reason, profit sharing is best used as a component of a compensation plan rather than as the whole means of compensation.

6. Offering a Choice

One of the most important factors in manager compensation is the competitive situation in the market. Where lots of good managers are available, companies do not have to pay as much. However, where talent is scarce, more aggressive plans are essential.

One innovative approach is to offer managers a choice of compensation plans. In the same way that you allow your sales associates to choose the plan that best motivates them, you can allow managers to choose the compensation structure that best meets their needs.

Whatever form of compensation you choose, it is important that managers clearly understand how the commission or bonus will be calculated, and feel that they have control over the factors that will affect those numbers. Without that understanding and that power, they won't be motivated effectively.

Compensation plans should not only be attractive to the manager, but should also be tailored to the needs of the company, providing incentive in those areas most needing improvement. When compensation is carefully thought out, managers can be motivated to lead the company in directions well above and beyond the daily operations of the business. 

TOP 5 Ways to use Sales Compensation as a Competitive Weapon

By David J. Cocks, CEO

I spoke with a gentleman recently who was buying a business and wanted to develop a sales force compensation strategy that would give him a competitive advantage.

He wanted to lure top sales representatives from his competitors, motivate them powerfully, and grow his business rapidly to the point where it would dominate the market.

Here's the approach I recommended he take:

1. Analyze your competitors' plans

First, you need to know what compensation plans your competitors offer. What salaries, base rates, draws, commissions, incentives, quotas, perquisites and benefit packages do they provide?

2. Ask sales reps what they want

Far too many firms skip this step, either because they don't care what the sales representatives want or because they think they already know. Don't make assumptions – ask! Your sales associates will tell you what they like about your compensation plans (and your competitions' plans), what they don't like, what motivates them, and how they would prefer to be paid.

3. Find out what you can afford

Many companies skip this step too. But you can't be aggressive about compensation without knowing how much your business can afford to pay your sales force. Analyze your expenses and revenue to find the maximum that you can afford to pay.

4. Blend what the sales reps want with what the company needs

When you know what your sales force wants and you know what you can pay and you know what else is available in your market, you are in a good position to create very desirable plans.

For example, top producers might be frustrated with plans that put a ceiling on their income. You can create a compensation plan with a lower base and a higher commission that rewards them for accepting more risk by giving them the opportunity to make more money.

Sales associates who have high fixed expenses (or trouble managing their money) might be willing to accept a lower total compensation package in exchange for the security of a higher base.

People who have health insurance through a spouse's plan may resent having to pay for coverage through your insurance plan. You can structure plans so people who don't want benefits don't have to pay for them.

5. Offer a choice

The key to success is realizing that the same compensation plan isn't going to work for everyone. You'll get the best results if you create several plans, each meeting the needs of a different group, and then let your sales associates choose which they prefer.

When you follow this five-step process, you can design a compensation strategy that supports your business plan, positions your company successfully against competitors, and allows you to recruit and retain the sales force you need. 

Top 4 Ways to Supercharge Your Sales Recruiting

By David J. Cocks, CEO

Recruiting the right people is an essential component of your firm's success. Here are some strategies that can improve your ability to recruit and retain the sales force you need.

In the same way that you sell the advantages of your product or service when you talk to prospects, you have to sell your company to potential recruits.

1. You Need to Define a Value Proposition that articulates why sales representatives should work for you rather than the company down the street. What is different or unique about your firm? What do you do for your sales representatives that other companies don't do? Do you offer more support? Better training? A higher commission? Unique benefits? A more experienced management team?

Research what your competitors offer. Ask sales people what they want. Then get creative. What can you offer that no one else is currently providing?

Come up with a strong value proposition that sets you apart from the other companies in your market.

2. Provide a Career Path

Show recruits that they can grow with your firm. Don't just sell what you have to offer them now; explain what you provide when they reach the next level.

This is easy to do when you offer packages of support, training and other services that are appropriate for sales associates at different levels of experience.

For someone who is right out of college or new to the industry, you might offer a fullcomplement of training, marketing assistance, and administrative support – everything needed to ensure success. A senior associate might prefer more independence; she may want to do things her way, without relying on the company for everything.

You want to structure compensation differently at each level, creating commission plans that meet the needs of each group. If you do this properly, you can recover costs at each level, so no one group ends up subsidizing the others.

3. Offer Different Styles of Compensation Plans

Your industry has a standard way of compensating sales representatives. Real estate has traditionally used splits, manufacturer's reps are usually paid a straight commission, many industries use base plus commission.

But just because everyone else does things that way doesn't mean you have to.

When you limit yourself to one style of compensation, you are limiting the number of people who will work for you. Everyone has a different tolerance for risk. There are many people who would make excellent manufacturer's reps, for example, who simply aren't comfortable being paid 100% in commission.

If you can figure out a way to offer other styles of compensation, you expand the labor pool from which you can recruit.

4. Ready Your Presentation!

The more you know about your competition, the more effectively you can sell against them. Know what services they provide, and be prepared to compare commission plans.

Compensation these days is so complicated that it's easy for sales representatives to get confused. Many times you'll be able to show that a plan that sounds better really isn't. Use Excel or CompensationMaster's Recruiter to create a graph that shows the differences between the plans at different levels of revenue, as well as a chart that les them look up their production level from last year to see how much they would have made working for you.

Don't be intimidated if you pay less. Three-quarters of the time, sales associates leave a company for reasons other than money. Explain your value proposition; stress the services that you offer and the strengths of your firm.

When you take advantage of these four strategies and differentiate your business with a powerful value proposition, meet the needs of employees as they grow, expand the pool of potential recruits by offering different styles of compensation, and design an effective presentation for recruiting, you supercharge your recruiting and are able to acquire the kind of sales force your company needs to grow. 

Find out how we can assist your company by talking to a consultant now +1.704.541.9695

Top 6 Considerations When Applying LEAN To Sales Force Compensation

By David J. Cocks

The challenge of designing sales force compensation plans is to create an environment where sales people are motivated and a transparently business culture is created. It is vital as many obstacles as possible are removed from the process so sales people can maximize their results while ensuring the company’s greater goals are met. Those goals could include achieving profitability targets, increasing revenue, controlling expenses or recruiting and retaining a desired sales force.  

From our experience spanning over 25 years, the below points are vital to enhance the process of successfully setting up LEAN to your sales force compensation plans. 

Treat Everyone Fairly and Consistently

If you have longevity bonuses or other features built in that give one group of people a built-in advantage, this is a good time to remove them. The best way to be fair is to give everyone the same opportunity to excel – and to pay them based on current production, not what they did in the past or might do in the future. When you do this, you build in a level of transparency and trust that is deeply appreciated by your sales people.

Offer A Variety Of Compensation Plans

The reality is that not all sales people are the same, and what motivates them isn’t always the same. Someone who has just joined your company will need more training; a top producer may want administrative assistance or more control over money spent on marketing and lead generation. Personal issues come into play too – someone who has college age children or is getting close to retirement might be more risk-averse and prefer a compensation plan that offers greater security. Or they might be ready to go for broke and do whatever gives them the chance to make the highest income. The simple fact is that offering a variety of compensation options makes your company more competitive – your sales associates can evolve their capabilities and grow in their careers, and get compensated appropriately. They don’t have to leave your company to get a different style of compensation that is more suitable to their current situation.  

Take This Opportunity To Re-Examine Past Deals

Re-examine the company’s business model. Why are people working for you rather than a competitor? What sets you apart? Do you have a clear, defined value proposition? If you do, your compensation plan should support your value. If not, you may have some changes to make. Don’t be afraid to question long-standing policies or services. Just because your sales associates negotiated for something years ago doesn’t mean they still want or need it. Put everything on the table and don’t be afraid to craft a vision that is brand new – even revolutionary. You’ll be surprised at how much energy a brand new, crystal clear value proposition can create.  

Use Business Modeling Software To Project Results Ahead Of Time

When you are making significant changes to your company’s sales force compensation, it is essential to know ahead of time the impact those changes are likely to have on total revenue and profitability. You can do projections in accounting software or Excel, but using business modeling software such as CompensationMaster’s makes it easier to see the big picture as well as interpret the nuances.  

Make Sure The Sales Force Wins! 

Oftentimes, sales associates are reluctant to have commission structures changed because they believe any change involves money coming out of their pocket. But if your new plans are designed correctly, sales associates should be able to make more than ever before. You also want to make sure they win on the sup- port and services issues. This is one reason the focus groups are so important – when you know what the sales force cares about, you are better able to re-allocate expenses to give them what they want. A sales force full of people who are powerfully motivated and have had disincentives to greater production removed is going to propel the company to increase revenue like never before.  

Measure Results

There are a variety of numbers you should track when you change compensation plans, including the increased productivity of people who are on the new plans, enhanced recruiting, retention of sales associates, and more. Start with a bench- mark before you introduce the new plans and track important statistics over the year after you launch the new structure. You’ll find it easier to report on ROI, as well as to see which offices or regions are surpassing others.

Top 4 Tips To Ensuring 2015 Is More Profitable Than Last Year

By David J. Cocks

You have closed the books for last year so now it's time to look at your results and see what changes, if any, need to be made for this year.

Tip #1 

Obtain the following statistics for the past three years. If you don't already have them at your fingertips, they should be in the end-of-year information you get from your accountant: 

•Total revenue 

•Total expenses 

•Operating profit 

•Sales representatives ranked by production

Tip #2 

Start by looking at the trends. Revenue and profit should both be increasing. Now calculate the percentage increases. Are they comparable? Revenue and profit should be growing at the same rate. If they aren't, that's your first indicator of a problem.

Tip #3 

Now look at expenses. They should be growing at a slower rate than revenue – and, optimally, slower than profit. If not, that's a second indicator. Also look at what expenses are increasing. Are they temporary investments that will help you increase revenue, or are they permanent?

Tip #4 

Finally, look at production levels for your sales force over the past couple years. Are they fairly stable? If there have been lots of changes, particularly if revenue is up and profit is not, that's a third indicator. Significant increases in productivity, such as those brought about by the Internet or customer relationship management software, cause many financial problems.

How Did You Rate? 

If you passed with flying colors, congratulations! If not, there's still plenty of time to make changes. Many profitability problems can be fixed, particularly in commission-based industries, by adjusting your compensation plans appropriately.

Top 4 Things To Avoid When Applying LEAN To Sales Force Compensation

By David J. Cocks

When compensation plans are structured correctly, it is possible to achieve all of your goals at the same time. Sales people can be paid the maximum possible while ensuring that corporate expenses are covered and profitability goals reached. Goals of the sales team and executive management can be aligned, with it being clearly in everyone’s interest to maximize revenue and control expenses.  

The company that structures its strategies correctly and with the right partner can gain a competitive advantage over other businesses by drawing the right people to the business almost magnetically. Here are some key lessons to avoid to ensure a successful restructure. 

Don’t Assume You Know What Your Sales Associates Want! 

Talk to them and ask what style of compensation they would like. When we do focus groups and online surveys of sales associates, we often see situations where managers are surprised by some of the things the sales force says. It’s easy for perceptions to be skewed by a few vocal people, and even managers who do a great job of having their finger on the pulse can find that the needs of sales associates have shifted due to new competitors entering the market or economic changes. It’s important to consider issues beyond commissions, because those can have a powerful impact on motivation. The company may be spending money on benefits that are no longer wanted. Technology changes rapidly, and tools can become outdated fast. Marketing may be delivering collateral the sales force doesn’t value the way it used to. Even office furniture and fixtures can make a difference. You want to determine if you are offering the combination of services and support the sales associates need – you can often identify opportunities to reallocate expenses to spend money on the things that matter more now.  

Don’t Neglect Updating Plans.

 Merit-based compensation plans are not something you can design once and leave alone forever. They need to be updated regularly, partly to meet new competitive situations as other companies enter and leave your market, and partly to take into account the changes in the CPI and prices in your market. You also want to update plans whenever you make an acquisition or engage in a merger. This is the best way to keep your company nimble and aggressive in your market.  

Don’t Skimp On Training Managers.

 Make sure your managers understand the vision and know how to sell it. If they don’t fully understand the value behind your new plans, you won’t get the results you are expecting. So make sure you invest in training them and getting them excited.  

Don’t Make Exceptions. 

There will be people who push back about the new compensation plans. But don’t make exceptions or special deals to keep them satisfied. That undercuts the whole structure of your compensation strategy and damages your integrity. If there is a strong reason to create an exception, instead of making it an exception, consider making it one of your public plans. Hold it to the same standard of profitability as the other plans, and make it available to everyone.