No to ‘Value-Added’ Plans –Farquharson/Tedesco
“Hey Bill, Let’s try something different this month. How about dedicating our next two columns to scratching the surface of sales compensation?” —T.J.
About a month ago, I gave a talk to a bunch of printers and finishers in Chicago. Sales compensation plans were on this group’s mind. In this column, I’d like to tackle one component: Payment on “value-added” services. Whenever this topic comes up with clients or industry friends, my vote is a resounding “nay.”
Imagine two printing industry sales reps, Joe and Jane, working for competing commercial print shops. Both are bidding on the same job for a new customer, which consists of printing and postpress services that need to be outsourced.
Joe’s company is run by a CFO-type who says, “We print. Our future is print. We’ve invested heavily in our pressroom, along with a few additional closely-related capabilities. We have a ‘value-added’ sales compensation plan: Sell what we do in-house and that’s it. If we have to buy it out, we ain’t gonna pay commission on that part of the job.”
Jane’s company is run by a sales-type who says, “Gimme the business. We compensate salespeople based on how much revenue they bring in, not on how much of the work is actually done in our plant. Sure, we’re going to mark up buyouts appropriately—more than 20 percent, of course—but we’re not going to let this job and client slip away. The heck with ’value-added.’ We’re paying our salespeople on the whole job.”
What do you think will happen in this scenario? Printing sales reps are motivated to do what it takes to say, “Yes, we can do that!” Joe and Jane are no exceptions. But, more importantly, printing sales reps are rational creatures who work to their incentive plans.
Jane will outsource the part of the job that her company would do inefficiently or can’t do at all. On the other hand, Joe will do his best to convince the prospect to restructure the job to meet his own capabilities. Jane’s less-restrictive sales compensation plan gives her the freedom to work to the prospect’s best interest, not her own.