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. 

How to Make Each Sales Associate a Profit Center

By David J. Cocks, CEO

Are some members of your sales force subsidizing others?

In some companies, the top producers carry the burden. In others, it's the mid-level or lowest producing members of the group.

Either way, it's not fair.

Consider treating each sales associate as a separate profit center.

View each sales associate as if he or she were an individual company. (Your firm as a whole is then like a big conglomerate.) Does each sales associate bring in more revenue than it costs to have him or her on board?

If not, what can you change to generate a profit?

You might want to create a commission structure designed specifically for new hires that allows you to provide the training and intensive support services they need to be successful – while ensuring that you recoup those costs. When associates are ready, they can move up to a commission structure designed for solid mid-level producers.

You can create another set of commissions for top-producing sales associates who don't need a lot of support and want to do things their own way.

When you set up commission structures like this, you can do a better job of meeting the needs of the sales associates. You can provide a higher level of support to those associates that want it, while offering independence to others.

You're also virtually guaranteeing corporate profitability. When you make a profit on each member of your sales force, it's hard not to make a profit on all of them put together – which makes your company more stable financially. But what's more important is that you are treating all members of your sales force in a fair and consistent manner. 

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

BIG Hat, NO Cattle? | Thriving in a Market Downturn

Thriving in a Market Downturn

By David J. Cocks, CEO

Is your business all hat and no cattle? In other words, are you focusing on increasing revenue at the expense of profit?

A lot of business owners focus primarily on top-line revenue growth, even though a business can't be run on revenue alone.

Here are some common misconceptions we see in the market:

Top Producers = Profit

Betting the farm on top producers might leave you without a farm. Big-name sales associates can negotiate high commissions and generous perquisites. Although their volume is impressive, it is not unusual to find companies losing money on their most productive sales associates.

Mergers and Acquisitions = Profit

One of the most popular ways to grow a business is by acquiring or merging with another company. But if the company was not properly valued, efficiencies don't materialize as expected, or compensation plans are not restructured to reflect the combined company's expense structure, the net result can be negative.

Cash Flow = Profit

In smaller companies, we often see owners who pay themselves with what's left over after expenses are covered. Although this helps ensure the company's cash flow, it's not an accurate accounting of profitability. Owners who sell need to pay themselves as if they were regular sales associates – and compensate themselves for the time they spend managing the business.

How Healthy is Your Business?

Even if your revenue is on a steady upward trend, your business may have hidden profitability problems. Now that you've paid your taxes and have all your year-end numbers, it's a good time to do a quick check to make sure your cattle are growing as fast as your hat.

You'll need a few statistics for the past three years to do the assessment:

• Total revenue;
• Total expenses;
• Operating profit;
• Sales representatives ranked by production.

First, look at the trends to make sure both revenue and profit are increasing, and then calculate the percentage increases. If revenue and profit aren't growing at the same rate, that's a red flag.

Now look at expenses. They should be growing at a slower rate than revenue. If not, that's a red flag.

Last, look at sales force production levels for the past couple years. If they're not stable, that's a red flag.

Did You Find Any Red Flags?

If you did, there's still time to make changes. Adjusting compensation plans can help solve some of the toughest profitability problems. We encourage you to discuss any red flags with your accountant, and of course, give us a call to see how we can help.

The bottom line: make sure you don't spend so much time focusing on your big hat that you don't have a place to hang it at the end of the day.