Your Rep Compensation Plan Should Reflect Your Business Objectives
Edition: September 1999 - Vol 7 Number 09
Sales rep compensation is one of the most controversial, least-talked-about, yet crucial issues in the industry today. Management's challenge is to find ways to motivate sales reps while retaining enough control to guide the sales team. Although the answer appears to be hard to find, actually, it's right under your nose.
The No. 1 rule to keep in mind is this: The compensation package should be designed to support your company's sales and marketing plan. After all, how can you ensure that your people will be motivated by the products and services that are important to the growth of your business?
The Business Life Cycle
In order to design a comp plan, it helps to review the business life cycle as it relates to the rep. In the early stages of a business, the company's primary goal is to sell volume. Reps must be able to close. They must be seen as theatrical and confident. Rewards must be tailored to enhance these qualities.
When a business reaches the point where it is looking to expand, it must broaden its mix of products. Reps now need to be consultative, and they must have the expertise and competence to detail many new products. Incentives encourage this willingness to learn all they can.
In the third stage, competition becomes an issue, with all players seeking greater market penetration. Reps need to turn their attention to the loyalty of the customer. They must build relationships, and of course, their pay structure must support this. One benefit to relationship selling is that price becomes less of an issue for the customer and profitability for the supplier improves.
In the last stage, the market becomes saturated and there is no room for further competition. In this environment, reps must focus on their customers' needs. Being responsive and service-oriented becomes the bane of their existence. Compensation must be tied to retention and winning customers away from the competition.
Take a moment to consider where your company lies on the line between start-up and saturation. Then ask yourself if your compensation plan meets the parameters set out above.
There are hundreds of ways to compute compensation packages, but for simplicity's sake, let's examine just five:
Building The Plan
So now you are getting ready to put pen to paper and outline your plan. Not so fast! There is more to comp plans than just creating them.
Some basic tenets must be followed when building the plan:
So now what? Well, only you can really answer that by analyzing your business. But here are a few ideas, as shared by some of your compatriots within the industry.
Rewards and bonuses -- Rewards can range widely, including the likes of car allowance, paid days off, trips, Rep of the Year awards, Frequent Flyer points and ballots toward a car or a cruise. Incentives are directed at many different things, such as spiffs on equipment, slow-moving and new products; bonuses for hitting GP targets, profit contributions, gross sales and units sold. Specific targets within market segments are also quite common. One company even rewards its reps based on survey results from their customers. With any or all of these incentives, frequency and duration can be modified.
Penalties and detractors -- What if offering bonuses for performance isn't enough to earn good performance? It is quite common for dealers to switch preferred manufacturers, but the sales team doesn't always follow along willingly. After all, they know the old vendors' products far better. So how do you get reps to shift their attention? Several dealers employ what I call a detractor; they reduce or eliminate the commission on lines they no longer wish to pursue. If this doesn't work, more dire actions may be necessary.
No matter what you use to encourage your salespeople, keep asking yourself if the program is supporting your company's corporate goals. If it is, your reps and company will probably flourish. This is the ultimate win-win.
About the Author: Jeff Stevens is Executive Vice President for The Stevens Company Ltd., and has worked there for 15 years. He represents the fifth generation of Stevens to work for the company, which was founded in 1830. The Stevens Company has four warehouses across Canada, which service most segments of the health care industry.