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Have Your Salespeople Hit the Compensation ‘Point of Diminishing Returns’?

Written by Mike Marks on Tuesday, 30 May 2017. Posted in Distribution

I’ve worked with dozens and dozens of distributors and manufacturers over the past couple of decades, and in that time, I’ve heard more times than I can count that the field sales team is imperative to building customer relationships and gaining mindshare, justifying the massive expense.

We’ve tested that theory more than once, interviewing customers to better understand the value that those field sales reps were bringing with each visit. For one company, we were told by customer after customer: "The guy just brings me quotes. That's all I need him for. He doesn't do anything else." In that case, the data supported shifting more resources to inside sales and their customer-service team.

That isn’t always the case, but without data, you won’t know.

As I write this, I can already hear your objections: “But my salespeople are working really hard. I pay them well to motivate them.” So in addition to taking an honest look at how well your resources align with your customer needs, take a closer look at whether your compensation structure is motivating your field sales to do what you need them to do.

In my experience, a lot of salespeople aren’t out there aggressively seeking new business, because they're already getting paid enough. There’s a point of diminishing returns with how much you pay, because once they’re at a comfortable place with their income, many go into maintenance mode and become quote-delivery machines.

One way to counter this is to have a policy in place for reassigning accounts if reps don’t beat the overall sales growth of the rest of the company. People will invest a lot more to avoid a loss than to seek a gain, and as long as they know in advance that you'll be shaking things up, they’ll know it’s coming and actively try to avoid it. In a recent IRCG-MDM survey on the role of field sales in distribution, we learned that only 21 percent of manufacturers and distributors have a written policy in place to guide how and when field-rep assignment changes are made. So a lot of companies have room for improvement in this area.

Even if your salespeople are truly giving their all out in the field, their efforts are probably not moving the needle much in terms of landing new business or increasing wallet share. Most distributors overestimate how much market-making their salespeople can actually do; see Are Your Salespeople Market-Makers or Market-Servers to learn about the surprisingly small amount of business that our research shows is generally moved as a result of “market-making” activities.

About the Author

Mike Marks

Mike Marks

Mike Marks co-founded IRCG in April 1987. He began his consulting practice after working in distribution management for more than 20 years. Over the years, his narrow focus in B2B channel-driven markets has created an extensive number of deep executive relationships within virtually every business vertical in construction, industrial, OEM, agricultural, and healthcare.

Mike has led project teams that improve market access by aligning resources to growth opportunities serving manufacturers, dealers, and distributors. Clients have ranged from small privately owned firms to many of the industry’s market share leaders. Ownership structures have included owner-operators, private equity, ESOPs, and publically traded firms. Mike is proud of the teams work and the confidence clients have shown with additional project work.

He has written extensively, and is frequently quoted on many industry issues. He has substantial board experience on both public and private distribution firms. His contributions to the field include serving multiple terms as a Research Fellow with the National Association of Wholesaler-Distributors, permanent faculty at Purdue University’s University of Industrial Distribution, eight years as Graduate Adjunct Faculty in the Industrial Distribution Program at Texas A & M University, and rendering several precedent-setting expert opinions in contract disputes between manufacturers and distributors.

Prior to forming IRCG, Mike held the position of Executive Vice President at Lex Electronics, an $800 million vertically integrated electronics distributor in Stamford, CT. Mike’s path to management in his early career was through increasing responsibilities in sales and sales management. He also completed a tour of duty as a manufacturer’s representative.

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