Sales Comp Plans, Revisited –Farquharson
Memo to: TJ Tedesco
RE: Your column idea
TJ, your “Take no prisoners” column on sales compensation in the April issue brought back a lot of memories and really got me thinking about the subject. As you know, the subject matter is a lightning rod for controversy regardless if you’re setting up a new plan, changing an existing plan, or writing about it for Printing Impressions. But allow me to take a walk down memory lane.
There are a lot of reasons to get into sales. For me, freedom was a leading factor. So was income potential. The job of “sales” is as close as you can get to being an entrepreneur without actually walking that tightrope. You are in charge of your own destiny, for the most part, and your income is directly related to your success at your job.
I remember my brother pulling me aside to show me the wad of cash he was carrying. He had just gotten his first commission check as a salesman and he had never seen that much money in his life. Neither had I. It was at that moment that I decided to follow his footsteps and go into sales.
One of the things you touched on in your column was coming up with a compensation plan for salespeople that struck a balance between the profitability of the job and maintaining sales ethics. The point you made was that a salesperson could possibly be swayed into suggesting a print solution on the basis of his or her commission, instead of what’s right for the customer. I agree and have experienced that issue myself.
The company that I first worked for when I left college—in truth the only real job I’ve ever had—paid 8 percent commission for new business and 5 percent of the order for repeat business. We were very well-trained and taught to look beyond the price of the job and do our best to reduce the cost of using that printed piece. Our goal was to come up with a different solution, very often something completely new and different. And untested.
So let’s say I do what I am trained to do and I create a new print solution for a client. The customer currently uses 100,000 pieces a year. The cost of my new design is $50,000. My commission for a list price job would be $4,000. In 1982, that didn’t suck.
However, common sense says that before you print up 100,000 of the new and unproven solution, it would be wise to print up a smaller quantity of, say, 10,000. After the test order has been consumed, the remaining 90,000 can be produced. The only difference is that my commission drops to 5 percent on what is now a reorder.
The situation that I’ve just described is not a hypothetical. This was a real scenario and I was the rep with a decision to make: Do I do what’s best for the client or what’s best for me? Naturally, I assumed that the company I worked for had the customer’s interests at heart and would help me to find a solution. Ah, to be young, naïve, and stupid again, eh? No, Bill, they told me. Rules are rules. No exceptions.
So, it was up to me and it didn’t take me long to reach a decision. I called the customer and suggested the test run. There was just too much that was new about this design in the process and it was far too risky for the client to order a full year’s quantity. They called me back the next day and placed an order for 100,000 pieces just the same. Phew! I guess I got my cake and ate it, too.
Compensation, by definition should reflect the employee’s contribution to the company. Sales compensation, however, is different in that it adds a component of motivation to the mix. For example, I am fond of saying that if you want your salespeople to sell digital and variable data printing, use their wallets as your microphone. That is what they listen to. Overcompensate if necessary, but you will get the rep’s attention by waving dollar signs in one direction or another.
I think the best compensation plan I have ever seen comes from a small commercial printer who has his priorities in focus: He wants new business. Remembering that salespeople follow the money, he pays 15 percent of all new business for a period of one year. That is, open a new account and you get 15 percent of anything that comes from that account for 12 months. After that, the commission plummets to 4 percent. Pop quiz, hotshot: if you were the sales rep that worked at this company, what would you spend your time doing? Me, too.
Oh, and let’s not forget about the challenge of changing a commission plan. I have never seen a comp plan change that does not reek of this message coming from management: My salespeople are making too much money.
Again, I refer back to my first sales job when someone in upper management came up with the idea of eliminating all compensation for one highly profitable product line and turning that business over to the telemarketers. They tried to sell us on the idea that it was good for us because, “This move will free up your time and give you a chance to expand your existing accounts.” I’m still scratching my head over that logic.
Life should be more simple than it is. Sales compensation plans should be no different. They should be fair and motivating and equitable. They should pay the salesperson in direct relation to the success of their selling efforts. Yes, there are many moving parts. But tying the sales compensation to value added is unnecessary and complicated. It is inevitable that management will look at a successful sales rep and say, “He’s making too much money.” But, before the manager changes the comp plan, he needs to think about what life would be like if that sales rep quits. And, then also takes clients with him.
So, TJ, I think that about does it for sales compensation. Next month, can we talk about something less controversial, like the proposed NAPL/PIA merger or politics or a few thoughts on the demise of the printing industry? PI
About the Authors
T.J. Tedesco is team leader of Grow Sales, a 16-year-old marketing and PR services company. He is author of the newly-released “Direct Mail Pal 2012” and seven other books. Contact Tedesco at (301) 294-9900 or e-mail firstname.lastname@example.org. Bill Farquharson is the president of Aspire For (www.AspireFor.com). His Sales Challenge can help drive your sales momentum. Contact him at (781) 934-7036 or e-mail email@example.com.
For further information, please visit BillFarquharson.com