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CompensationMaster Newsletter Article, July 2005 When management starts
talking about increasing profitability, sales representatives start to worry.
They know that improving profitability usually means cutting commissions and
eliminating expenses, possibly for marketing, administrative support or benefits
that they value. They are concerned that the increased profitability will come
at their expense.
But that’s not the way CompensationMaster’s approach works.
One of the main reasons our system is so successful is that we don’t just
come in and transfer money from sales representatives to the company. We
wouldn’t be able to achieve the 98% retention rate we are currently getting if
that’s the way we worked.
Instead, our strategy is to optimize the way our clients do business.
Better meet the needs of the sales force
First, we re-allocate expenses to
better meet the needs of the sales force. We come in and analyze the market, the
sales force, and the company’s financials. We talk with the sales
representatives and find out what they want. (Very often this produces some
surprises for the management team, which may not have realized that the needs of
the sales reps have changed.) We identify groups of sales representatives that
are not having their needs met and look at what the company can do to better
meet those needs.
Very often we can identify expenses that are no longer providing the value
they should. In some cases there are benefits the sales force doesn’t want
anymore. For example, sales representatives might not want health insurance
because spouses’ employers provide coverage. In other cases, investing in
training or additional administrative support might give the firm a competitive
advantage in its market. We help our clients re-allocate their expenses to
produce the maximum value for the sales force.
Motivate effectively with the right commissions
Then we design compensation
plans that are consistent and fair to everyone. We eliminate exceptions and
disincentives to greater production. We try to give all the sales
representatives the same opportunity to increase the amount of money they make.
We like to offer a variety of plans so each sales representative can choose
the risk-reward combination that he or she finds most exciting and motivational.
And we make sure the sales representatives are paid as much as possible while
ensuring that the company has enough money to pay its bills and make a profit.
Reward sales force for increasing revenue and reducing expenses
Then we align
the goals of the sales force and the management team. One advantage of CompensationMaster’s system is that it helps the sales force understand that the
money for the services the company provides actually comes out of the sales
representatives’ pockets.
With a contribution-based approach, sales representatives are responsible for
contributing their fair share towards corporate expenses and profit. Once that
contribution has been made, they are able to keep most of the rest of the
revenue they bring in. (For a more detailed
explanation of this approach, click here.)
Sales representatives are motivated to increase revenue; as they sell more,
they make more. But with this system they also increase their income by reducing
expenses. When expenses drop, the amount they have to contribute decreases, so
they keep more of the money they bring into the company.
The result is that the sales representatives acquire a perspective similar to
the one management has, with twin goals: increasing revenue and keeping expenses
under control.
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