Sales & Marketing -- More Than Volume

There are other issues to consider in sales compensation.

If you've changed your business strategy, if customer relationships have changed, or if your company is adapting to new market challenges, you probably should be making corresponding changes in your sales compensation plan. In an era when customers are looking for strategic business partners rather than vendors and advisors, manufacturers that rely on sales-comp plans driven solely by volume or revenue may be putting themselves at a competitive disadvantage. That's not to say that volume- or revenue-based rewards shouldn't be a part of sales compensation. But at leading companies they are becoming a smaller percentage of the total compensation package. For instance, at Compaq Computer Corp. revenue growth accounts for only about 50% of total sales compensation. The balance is driven by account profitability and something Compaq calls focused sales objectives (FSOs). The FSOs are a way to reward salespeople for strategic, nonrevenue objectives such as solidifying relationships with new business partners or finding new applications within existing accounts. Dell Computer Corp., which manages multiple channels including the Internet, catalog sales, inside and outside salespeople, and corporate account salespeople, bases pay on a model that tries to facilitate the movement of customers to the appropriate sales channel. Procter & Gamble Co. has redefined the role of its salespeople to focus on "customer business development" and measures and rewards the efforts of its "customer consultants" in helping customers to lower their inventory, better match product offerings to customer needs, adapt pricing to local markets, and set up co-marketing plans. "Companies now want more from salespeople," say Jay R. Schuster and Patricia K. Zingheim, authors of Pay People Right (2000, Jossey-Bass) and partners in Schuster-Zingheim and Associates Inc., a Los-Angeles-based compensation consulting firm. While in the past the objective might have been to overpower all obstacles to achieve the company's revenue goals, leading companies "now expect their salespeople to generate targeted profit performance, establish a continuing and mutually beneficial relationship with important customers, and to direct their sales efforts to support changes in business strategy." The more complex sales become the more you need to look at goals or objectives like the FSOs that Compaq talks about. "If you've got big customers, your focus should not be volume so much as product mix and profitability," says Zingheim. "A focused sales goal might be designing a sales solution that is a win-win for the customer and for the organization that the salesperson represents. In complex sales situations where salespeople are heavily involved in price negotiation, price realization might be an important sales goal and compensation driver, with compensation tied to the price a sales-person actually gets compared with a list or target price." Companies with exceptionally long-selling cycles might reward salespeople for their success in managing the customer relationship through key periods of the selling process. What else are companies measuring and rewarding? The number of supporting or nonrevenue sales objectives a company might pursue fall into four broad categories. Implementation of any one or all could help spice up a sales-comp program:

  • Penetration-increasing business with existing customers.
  • Customer retention or customer mix-with a focus on retaining profitable customers, not necessarily all customers.
  • Conversion-acquiring new customers from competitors.
  • Tapping new markets and applications. Salespeople look to their reward system as a communicator of company objectives. It makes no sense to reward outcomes and behaviors that are inconsistent with business strategy. William Keenan Jr. is editorial director for Alexander Communications Group, New York, editor of Sales Rep's Advisor newsletter, and the former editor of Selling magazine.
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