So, you have considered the structure, the basis of measurement, the timing of the payment of compensation, and implemented an incentive compensation plan to drive sales behavior; but…
By J. Brad Steward, President of Pulakos CPAs PC
So, you have considered the structure, the basis of measurement, the timing of the payment of compensation, and implemented an incentive compensation plan to drive sales behavior; but, you are not seeing a change in sales. The incentive plan, specifically the incentive rate, is likely not the problem.
Motivating sales in not just a fire and forget process for management. Implementing a sales management plan along with an incentive sales plan is an action plan designed to increase sales. A sales management plan is a proactive activity to specifically increase sales.
Examining and managing the sales by customer and the assigned salesperson is an important analysis that is executed at least annually by high performance management teams. The starting point is a three-year history of sales by customer /salesperson. The next step is an analysis of the total purchases by customer for each year of the three-year history – this is defined as the customer’s “wallet.” The next step is determining your company’s share of the customer’s wallet for each of the last three years. Examine customers where your company’s share of the wallet is less than 60%.
Defining the customer’s wallet is a process of estimating the total purchases made a customer during specific period of time, usually an annual number. This can be determined in multiple ways. One is based on inquiry of the customer. All too often the salesperson has never asked, “how much of your total purchases do you buy from me and my company.” If your salesperson is not asking this question and the follow up questions of “why do you purchase that level from our company” and “what could I do to lose your business”, then you probably need to hold a sales meeting with appropriate training. Remember, people are born babies not sales people!
Back to the question of the wallet, there are industry standards that can be used as a reference to determine if the answer to the first question of the customer is an honest one. Those may be based on purchases by employee, percentage of sales, etc. Contact me or one of our Team Members to discuss.
Now that you have identified the sales less than 60%, determine if it is a three-year trend or something that has happened over the last year, and do the following:
If it is a three-year trend, then reassign the customer to another salesperson and monitor the effort by the new salesperson. Don’t forget to re-assign a replacement account to the salesperson that just lost an account.
If it is a recent trend then monitor the salesperson’s activity on this account by quarter; and/or
As a member of management, visit the customer and determine the reason for the drop in sales.
A member of management should be assigned to meet with each customer on a regular basis, with the assigned salesperson, to thank the customer for their loyalty and continued use reliance on the company, explaining that they are important, valued customer.
If you have implemented a sales incentive plan and a sales management plan, and you are not getting the desired behavior, then job redesign should be considered. At a minimum, an evaluation of your plan with one of the Pulakos Team members should be considered.
For example, a company with a 40-year history had sales that were stagnant in a growing market. Management believed that the incentive was not sufficient enough to motivate the sales behavior, although the sales commission was one of the highest in the industry. Upon independent review, it was determined that the company had never had a sales meeting in its 40-year history and did not have a sales management plan. Upon implementation of both a sales meeting1 and a sales management plan, the company experienced over a 20% cumulative increase in sales over a two-year period. The return on the investment (ROI) for the effort was significant, repeatable and on-going – a triple win!
For more information on how your company can achieve better results, contact the team at Pulakos CPAs – where Performance Matters™!