Paying Reps for Sales You Already Have
If there is one topic that will send many printing company CEOs around the bend it’s sales compensation. Their frustration with how and how much sales representatives are paid is a constant. Why the discord?
Most salespeople (with some exception) are paid on commission. While there may be a small salary, a draw against future commissions, a bonus structure, and an added incentive to direct their sales efforts to certain accounts, verticals or products, commissions are the constant. The rationale for this is simple. The more salespeople sell, the more money they earn. And since they want to earn a lot, they will sell a lot. Experience tells a far different story.
Turns out that the majority of salespeople do not want to earn a lot, they want to earn enough and when they get to enough, they modulate their prospecting efforts (a polite way of saying they stop). And they define what is enough, driven by the kind of lifestyle they want. In effect, they move to an account management role, making sure the customer is well satisfied and remains a customer. No argument there, except that the company probably employs customer service representatives to help customers with what they need and, the expectation that CEO’s have of salespeople is that they will continue to prospect and sell to new accounts. Something’s got to give.
It is a considerable paradox that while CEOs are not enamored of their sales compensation plans, many are reluctant to attempt to change them, lest they ignite a palace revolt. What to do?
Convening a strategic session can reveal some interesting insights and a path forward. First, what type of compensation scheme best serves the business? What is the corporate strategy for account development and retention and what is the potential average LTV (Lifetime Value) of the kind of accounts the business will target? This exercise will naturally lead to a determination of the MAC (Maximum Acquisition Cost), that is, what the business can afford to invest in attracting the key accounts that fit its well-defined strategy.
Finally, determining what percentage of the MAC is shared with the business development specialist (ie, salesperson) can be calculated with key data which provides context for establishment of a compensation plan that works for the rep and for the business. It may also shine a bright light on the fact that getting a new key account is more difficult than keeping one (although the latter also requires great focus and effort). This too should be considered in recasting a comprehensive, strategy-based compensation plan.
While no compensation plan is perfect, constructing the plan from the ground up, using corporate strategy and some data analytics can go a long way toward creating a process that is grounded in sound thinking and logic.
For more information on ways to better organize your company’s sales growth strategy, contact me at email@example.com
Joseph P. Truncale, Ph.D., CAE, is the Founder and Principal of Alexander Joseph Associates, a privately held consultancy specializing in executive business advisory services with clients throughout the graphic communications industry.
Joe spent 30 years with NAPL, including 11 years as President and CEO. He is an adjunct professor at NYU teaching graduate courses in Executive Leadership; Financial Management and Analysis; Finance for Marketing Decisions; and Leadership: The C Suite Perspective. He may be reached at Joe@ajstrategy.com. Phone or text: (201) 394-8160.