|
Start an honest discussion between the CFO and Senior Sales Management about your pay practices. The effectiveness of an incentive plan is ONLY determined by its ability to help you achieve your business objectives. If your objectives have changed over the last few years, how has this been reflected in your incentive practices? For example, consider that all dollars of gross profit are not created equally.
This has become a recurring theme in the distribution industry over the last couple of years. Most Service Centers burn up half of their gross margin dollars in payroll and payroll related costs. Half of this sum, or a full 25% of margin dollars, is burned up in sales activities. This is typically a Service Center's single largest cost driver and, up until the recent industry profit pressure, has been treated as a "sacred cow."
Don't get me wrong, effective sales performance is, and will continue to be, critical to a company's long term success. My heartburn is that the function continues to be under-managed and, in many organizations, "the inmates are running the asylum."
In the 1960's view of the world, a sales rep went out and developed a territory by selling and servicing a geographical set of customers. They were typically paid some percentage of the generated gross margin dollars upon transaction invoicing. They operated in a "Lone Ranger" mode and sold themselves first because people liked to buy from their friends. They took care of the customer from womb to tomb and differentiated themselves by "selling service." Performance was measured by growth in revenue and margin dollars. Typical controls were limited to a budget or quota and maybe call reports.
Most Service Centers still run with some version of the system I just described. We have done several field sales incentive and compensation design projects for companies in this industry. They all had similarities that included:
- Volume was highly correlated with tenure rather than managerial ratings of rep performance. Account assignment was the defining criteria and that is clearly linked to tenure. "A Players" need to make "A Money," but there are many examples of long tenured B and C Players being paid "A Money" as well.
- Sales reps spent their time with established accounts to protect their income stream rather than developing new customers. In a sample size of several hundred sales reps, the highest percent share of sales to new customers (those whose accounts had been opened within the past 12 months) as a percent of total sales was 0.4%.
- Customers have consistently valued the inside sales function in a Service Center over the field sales function, yet Inside Sales Representatives are paid significantly less than Field Sales.
- Sales Managers were also frustrated with their inability to get the sales force to launch a new product. Even with new inventory on the shelf and dedicated processing equipment to support it, not much happened. It was like herding cats.
If any of the above sounds like your organization, consider taking the following actions:
Start an honest and frank discussion between the CFO and Senior Sales Management about your pay practices. The "goodness" of an incentive plan is ONLY determined by its ability to help you achieve your business objectives. If your objectives have changed over the last few years, how has this been reflected in your incentive practices?
Consider that all dollars of gross profit are not created equally. If you are launching a new product line, those GP dollars are strategically critical to your business for the first year. Decide which GP dollars are worth more to your business and adjust incentive practices to reflect the real contribution.
Managers manage sales people and incentives reward those sales people for supporting the managers' objectives. You can't manage a sales force with an incentive plan, rather you manage it with a real manager. Take some time to define your organization's sales management process. Quotas are frequently "rectal forecasts" and call reports are often the closest a sales rep will ever get to a Pulitzer prize in literature. What have you done to identify the activities that create results and then manage and allocate those activities?
The advent of Supply Chain Management (SCM) and E-Commerce is having a major impact on traditional transaction management servicing tasks. Many sales reps today are simply highly paid apologists, "I'm sorry they messed that up, I'll personally take care of it myself." Does it make sense for a highly paid professional sales rep to do clerical replenishment purchasing tasks? Do your customers want to pay for it? Is there a better way?
Sales Management has grown into a true profession of the last decade. Best Practice models have become highly developed. Best Practice Companies frequently provide non-commission-based-incentives. Technology solutions actually work. Many Service Centers are stuck in the old view of "Our business is different and you need 20 years experience to manage this highly intuitive and artisan process." Some of these folks know so little about the actual state of the profession that they are unable to even rate themselves on a 1-10 scale of competence. If you are less than thrilled with your incentive practices, go invest some time to find out about the many alternatives. This is much more rewarding than perpetual complaining in a "data free" discussion.
Background on J. Michael Marks and Indian River Consulting Group
Indian River Consulting Group is an experience-driven, general consulting practice that focuses on the wholesale distribution industry. They work hand-in-hand with their clients to implement solutions rather than just make recommendations. Noted industry expert, J. Michael Marks, is the founder and principal of Indian River. For more information, visit www.ircg.com.
Copyright © Indian River Consulting Group LLC. All Rights Reserved.
Please contact Sandie Stewart at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
for republishing permission.
|
