Are you Becoming Commoditized?

By David J. Cocks, CEO

If your profit margins are being squeezed tighter and tighter, there's a good chance that you're becoming commoditized.

Commoditization is the process that transforms a profitable, differentiated product or service into a commodity.

As markets for any product or service develop over time, they coalesce. The products and services evolve to the point where they fully satisfy the needs of most customers. As soon as one company identifies and launches a differentiator, it is quickly met by competitors, who introduce the same feature.

The products and services come to be viewed as commodities, despite attempts to brand them and preserve their distinctive value propositions.

Once reduced to commodity status, the most visible difference between products becomes price. Price wars ensue, forcing prices lower and lower.

When products are perceived to be interchangeable, the focus shifts to the selling process. Highly skilled sales representatives become superstars. They develop a following among their customers, who express a strong preference to work only with them. Because they have the ability to bring their customers with them should they choose to move to another company, they can command higher and higher commissions, perquisites and other concessions from their employers.

At this point, not only is the product a commodity to the customer, but the company is a commodity to the sales representative.

Businesses are caught in the middle, between declining prices and ever-increasing salaries. Profit margins, already under pressure, diminish to the point where all but the most competitive firms are forced out of business.

How do you deal with commoditization?

The answer is to acknowledge what is happening to your industry and embrace the change – if nothing else, it will remove many of your competitors.

Study what has happened in other industries that have already passed through this stage and look for a way to differentiate your firm – preferably with something that can be sustained over the long term and can't easily be copied by competitors.

The strategy we recommend is to find a way to better meet the needs of your sales force. When you devise a powerful way to differentiate your firm from other employers, you can attract and retain the best sales force, creating a long-term competitive advantage. You can differentiate by offering styles of compensation not available from competitors, such as salaries or high-split plans, or give associates a choice of compensation plans. Or you can offer packages of training, administrative support, marketing support, and benefits that fit associates' needs better than competitors.

The key is to ensure that your firm retains its profitability while gaining that competitive advantage. 

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. 

How to Handle Sales Performance After a Merger or Acquisition

By David J. Cocks, CEO

When companies go into a merger or acquisition, there is often a tendency to leave compensation alone – the feeling is that the ownership change will be traumatic enough without changing the commission structure too.

However, this leads to problems. Invariably, representatives compare plans. There are bound to be differences: different commission levels, base salaries, incentives, perquisites, benefits and more.

No matter how generous the plans are, representatives are going to feel that "the other guys have a better deal."

One company's reps see that sales associates at the other company receive a higher commission, while the other company's reps notice the higher level of administrative support and lead generation the first company provides.

To keep everyone happy, there's a tendency to creep towards a plan that has the best of both – higher commissions and higher levels of support, services and benefits. This can be disastrous.

The longer it goes on, the worse it becomes. Top producers have the leverage to cut better deals for themselves, and resentments build and fester.

Additionally, the longer plans are left alone, the harder it becomes to find a good time to make a change.

Right after a merger or acquisition is the perfect time to rationalize compensation. Creating new compensation plans makes a clear statement of the company's goals and positions everyone to move forward without the baggage of the old arrangements.

Start by asking sales people from both companies what they like and don't like about their compensation structures. You'll get good feedback that will help you design new plans, and you'll also have information about what works and doesn't work that you can use to better manage the combined sales force.

The simple act of asking what they want sends a powerful message to the sales force and is an excellent retention device.

Then you need to decide what value proposition you want to offer the sales force. Can you combine what each company is doing now? If one company has a particularly attractive culture, you may want to transition everyone to that offering. Or it may make sense to start over with something brand new.

You can take this opportunity to rationalize the compensation structures, bringing them into line with what the sales force needs and wants. Maybe some of the services or benefits one of the companies offered are no longer needed. We have actually seen companies pay for an acquisition simply by restructuring compensation.

Don't forget to do a thorough financial analysis of any proposed changes. We saw a merger once where one of the companies offered a very generous commission at high sales levels, which they could afford to do because very few people ever reached that level. The company they merged with had far more high producers, and when management decided to offer that plan to everyone they quickly found themselves in serious trouble.

Of course, you need to take into account the revised cost structure of the new company. You'll be saving money through consolidation and reducing duplicate costs. Those savings can go to the bottom line.

Or you might invest them in your sales force by designing plans that provide higher commissions – which would be highly motivational to the existing sales force and very useful for recruiting.

By taking advantage of a merger or acquisition to revise your compensation plans, you can better meet the needs of the combined sales force and position your company for greater growth in the future. 

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. 

Test Your Sales Force Compensation IQ

By David J. Cocks, CEO

See how much you know about sales force compensation – take the following 10 question quiz. Answers are given at the end... if you have any questions please contact us!

1. The only information you need to design a good sales force compensation plan is what your competition is paying.
A. True
B. False

2. If a company similar to yours is getting spectacular results from a new commission plan it makes sense for you to try it too.
A. True
B. False

3. It is better to set up compensation plans so sales associates are paid when they make the sale, as opposed to paying them when the company receives payment.

A. True
B. False

4. The biggest concern managers have about changing compensation plans is that sales representatives will leave.
A. True
B. False

5. The main reason sales people quit is that they find a better-paying job.

A. True
B. False

6. Most sales people would prefer to have a choice of compensation plans.

A. True
B. False

7. The benefits of offering sales people a choice of compensation plans include a lowering of the company's breakeven point and an increase in the number of people who will be interested in working for the company.

A. True
B. False

8. When managers are paid a bonus based on revenue, the best revenue figure to use is total revenue.
A. True
B. False

9. Firms that have invested heavily in technology to make their sales force more productive often see an increase in revenue in the first year and a decrease in profitability in the second year. This problem can be fixed by revising the company's sales force compensation plans.

A. True

B. False

10. It is possible to design compensation plans that treat each member of the sales force as a separate profit center.
A. True
B. False

Answers: 1-B; 2-B; 3-B; 4-A; 5-B; 6-A; 7-A; 8-B; 9-A; 10-A 

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

At Risk of Losing Your Top Producers?

By David J. Cocks, CEO

Are you at risk of losing your top producers?

In our work with hundreds of sales organizations, we see many making the same mistakes with regard to their top producers. To keep from losing your best sales reps, here's how to avoid these common pitfalls.

Reward proportionally to their contribution

In many organizations, top producers are carrying the load for the new reps and other low producers. This just isn't fair. You need to design your commission structures so that even lower producers generate a profit for you. That way, you can afford to pay your top reps more. Fair warning... if you don't figure out how to do this, one of your competitors will!

Remove disincentives to greater production

Sales reps often stop working once they reach a certain level, either because their commission gets capped or they are concerned that their territory will be reduced. When you remove these disincentives and structure commission plans correctly, you can motivate your top reps to keep working hard year round, increasing revenue and profits substantially.

Occasionally we'll run into a situation where the disincentives are in place because the CEO doesn't want anyone else making more than he or she does. But this isn't an appropriate comparison. The compensation sales reps receive is based on short-term revenue; CEOs are typically compensated over the long term with ownership or stock options. You should be delighted when you have sales reps making more than you do!

Reward the right behaviors

Sometimes compensation plans are so complicated that the reps can't figure them out or they end up rewarding unproductive behavior. You want to design plans to focus on what's most important for the company, which usually is increasing market share and operating profit.

Maintain consistency

Some organizations will introduce a compensation plan, then halfway through the year when the results aren't what they expected, they change the plans. Their top people get frustrated and leave.

You need to model the results of your compensation plans before you introduce
them – using a modeling approach that has been proven accurate in the past – so you know what's going to happen before you launch the plans. Then you can leave them in place for a full year before tweaking, giving your sales reps the predictability they need.

Well-designed plans retain your top reps, who are so important to achieving your revenue goals, and reduce the hiring and training costs associated with high turnover. 

They're a solid investment in your future.

Dealing With Change

By David J. Cocks, CEO

Here at CM Global Partners, using our proprietary software CompensationMaster, we have a unique view into sales force compensation industries – we work with companies around the world, helping them restructure their businesses and design (and implement) new commission structures that ensure financial stability. We know how thin profit margins are for most companies. And we know how hard business owners are working to keep their companies afloat.

It is deeply troubling to see so many businesses going under, being bought for almost nothing – sometimes just 20 cents on the dollar – seeing dreams and livelihoods disappear overnight.

But we are also seeing companies succeeding, despite market fluctuations. Companies buying up other firms, recruiting top producers away from weaker competitors – companies that are growing rapidly.

Here's what you can do to copy those companies...

Let go of entitlements

If you are giving your sales force splits that are not justified, you need to STOP. It is a mistake to give sales people a higher commission just because they have been with the company for a long time, when their production does not justify that split. They might be the nicest people in the world, but as much as we all would sometimes like to, we cannot run a business by giving more to people just because we like them.

Stop driving from the top – listen to your sales force!

You need to figure out who you are in today's changing environment. Ask your sales people what they want and listen to what they are telling you. Then take action, even if it is painful.

Get rid of bricks and mortar

We are seeing companies around the world let go of bricks and mortar. You still need storefronts, but do you need all of them? Walk through the offices in each of your branches. How many people are there? Almost every company can get by with significantly less space than they have. And since this is probably your biggest expense after commissions, this is a perfect place to look for savings.

Time and time again when we restructure a company, we are seeing that it makes sense to close branches and create drop-in centers where sales staff have flex-based desks. Since so many people work from home now, this works for them.

Consolidate administrative staff – use technology

Creating support centers lets you centralize your administrative staff. Then you can use technology to provide better service to your sales people and clients at a lower cost.

For example, we are seeing companies provide high-tech touch screens in their storefronts. Clients can touch the screen, push a button, or make a call to reach a call center that immediately sends them information and notifies the appropriate sales person instantly via their smartphone. Sales people love this and it costs less than you would expect.

Recruit aggressively

Sales representatives are looking for companies that can provide the opportunity to earn a living. If you can cut costs by reducing the amount you spend on things the sales force doesn't value, you can turn that savings into increased commissions, making you much more competitive in your market.

Top producers are looking for stability – like everyone else. Make your business the one in your market that delivers what they want, and this will turn into the best opportunity to recruit that you have ever seen.

Change is necessary

Very few people embrace change. It is always going to be easier to try to hold on to things as they are, and hope the green pasture days come back soon. But the companies that are going to find the greenest pastures are the ones who leap into this new environment with both feet. 

Why Choice Matters

By David J. Cocks, CEO

One of the issues we discuss often with managers is why offering a choice of compensation plans is such a smart strategic move for the business, especially in this market. Here is what we tell them...

The fact is no single compensation plan is going to be able to address the needs of all members of your sales force.

People have different levels of experience and ability. Some need more training and support; others don't want the services and prefer to be independent. Some are more willing to take risks; others value security and having a predictable income.

When you offer only one option for compensation, you are not meeting the needs of everyone who works for you as well as you could.

The result is that you leave open the door for competitors whose plans do a better job of meeting the needs of specific individuals.

The way many managers deal with this is to make exceptions. But special deals erode trust and leave some people feeling like they are not being treated fairly.

Offering a choice of plans solves these problems.

When you provide a variety of options, you allow each sales associate to choose the plan that most effectively motivates them. They can balance their need for risk and reward, as well as for support and independence.

You can design new plans that motivate more effectively than what you had before – you can remove disincentives to greater production and inspire sales people to new heights.

You can introduce a true merit-based system that fairly rewards all sales associates, regardless of their level of productivity.

This also gives you the opportunity to address legacies – outdated and unprofitable compensation structures that no longer serve the purposes for which they were designed. Instead you offer a selection of other options and let each person make their own decision. Giving people this level of control makes it substantially easier to convert your sales associates to new plans.

But what's more important is that you are introducing transparency into the compensation system. You are treating everyone with trust, respect and fairness. Instead of secretive special deals, you are showing integrity by publishing an official set of plans and letting people choose.

The result is a much stronger, more competitive business, where recruiting and retention become significantly easier.