Rethink Your Approach to Sales Incentives

Effective sales performance is and will continue to be critical to a wholesale distribution company’s long-term success. But the sales function continues to be undermanaged and, in some cases, the inmates are running the asylum.

In the 1960s view of the world, a sales rep was paid a percentage of the generated gross margin dollars in a defined geographical territory, and most operated in lone-ranger mode and followed a relationship-based model. Performance was measured by growth in revenue and margin, and controls were limited to a budget or quota, and sometimes call reports.

Many distributors continue to run this model today, which can make it difficult to get sales reps to focus on new customers or new product lines because they are instead focused on protecting their existing income streams. The value of inside sales and rep performance (vs. tenure) are also downplayed under this model.

If any of this sounds familiar, consider taking the following actions:

  • Start an honest and frank discussion between the CFO and senior sales management about your pay practices. A sales incentive plan’s strength is only determined by its ability to help you achieve your business objectives. If your objectives have changed over the past few years, have your incentives reflected that change?
  • Consider that all gross profit dollars are not created equally. For example, if you are launching a new product line, those GP dollars are strategically critical to your business for the first year. Adjust sales incentive practices to reflect the real contribution of GP dollars.
  • An incentive plan does not manage a sales force. Sales managers do. Define your organization’s sales management process. What have you done to identify the activities that create real results, and how are you managing and allocating those activities?
  • Reconsider the role your sales reps are taking in the era of e-commerce and technology-driven efficiencies. Many sales reps today are simply highly paid apologists: “I’m sorry they messed that up. I’ll personally take care of it myself.” But does it make sense for a highly paid sales rep to take on clerical purchasing tasks? Is there a better way?
  • If you’re not happy with your incentive practices, invest time to learn about the many alternatives. Don’t make a data-free decision.

Learn about IRCG’s sales compensation plan services.

Read this article from IRCG’s Mike Emerson on how to incorporate key profit drivers into a sales comp program: Selling Less, Making More Too Good to Be True