Sales Compensation – Be Careful What You Wish For!

Compensating sales staff can be complicated. You want to structure their compensation so that they are “hungry” to make sales yet you do not want to over pay them or make it too easy or else they may get lazy in their sales efforts. Like other positions within the company, high performing people are worth their weight in gold. Poor performing people can really put a drag on your earnings. A good balance of fixed versus variable compensation usually works well.

Customer #1: The customer was in a rapidly growing sales cycle of their business. Technology was new and quickly adapted by the market. We spend some time in the various retail locations, observing customers, employees, behaviors, and patterns. It is amazing what one can learn by walking around with the people on the front lines and asking questions. Over time, we noticed a flurry of sales activity in the first part of the month and a slower sales pace during the last part of the month. We asked a few sales people if they knew the reason. The answer may surprise you.

The sales compensation structure was set so that they were paid a bonus for hitting certain thresholds each month. Once the last threshold was hit, the sales staff would coach their potential sales to come to the store during the following month. This resulted in a “managed” sales approach which basically pushed sales into the next month in order for the sales staff to hit their quotas and reach their bonuses.

We spent some time explaining the reason to the CEO, who obviously did not want to believe this pattern. Once he finally came around to believing it, he was furious. However, he had no one to blame but himself. People were basically doing what he was paying them to do.

We revised the sales compensation structure whereby sales staff were compensated for every sale they made. Consequently, sales increased. Although sales staff made more money, the company made even more.

Customer #2: We observed sales activity over a period of time. Each week, the CEO held a conference call with his sales staff, who were distributed throughout several states. Each sales call would last two or three hours as his sales staff would make their individual report. The company even went so far as to place tracking devices on their vehicles to monitor how much time they spent driving to customers. The company spent more effort requiring a voluminous amount of sales reports, which was a waste of time. None of this increased sales.

We noticed a pattern of sales staff basically “promising” several sales every week, but nothing of any significance was being sold. We examined the sales compensation structure and noticed that approximately 80% of their compensation was fixed (or a base) while the other 20% was variable (or commission) tied to actual sales activity.

We changed the mix of fixed/variable compensation from 80/20 fixed/variable to about 40/60 fixed/variable. As you can imagine, the sales staff met this change with some resistance. However, they were well-paid and not likely to go elsewhere.

Also, we showed them that if they made their sales targets that they would actually make MORE money than what they made before. Within three months, sales began to increase, sales staff made more money, and the company made even more money.

Are you getting the sales results you want? How are you paying your sales staff?

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