When I spoke at this year’s MDM-IRCG Sales GPS conference, one of the workshop attendees commented that they felt handcuffed by their sales compensation model and the management time and effort required to make changes to it. It’s a common complaint, and understandable. As difficult as it might be to change your current model, though, keeping it may be even more detrimental. Here are just three of the many ways stubborn adherence to old compensation models can tie you down:
1. It holds you back from hiring the best talent. More and more of my firm’s clients report they are facing challenges recruiting field sales representatives due to current pay structures, often because the fixed portion of the package they are offering is too low. (Download IRCG’s New Age, New Pay whitepaper for more on millennials and sales compensation.)
2. It can lead to complacency among your reps. In my experience, a lot of salespeople aren’t out there aggressively seeking new business, because they're already getting paid enough. Is your compensation based solely on carrots? If so, there’s a point of diminishing returns with how much you pay, because once reps are at a comfortable place with their income, many go into maintenance mode. If you aren’t willing to change your compensation model to include a stick – such as the threat of reassigning accounts if reps don’t beat the company’s overall sales growth – you may be holding yourself back.
3. It can drive reps to ignore “unprofitable” accounts. This may sound like a good thing, but the reality is that if you’re using an activity-based costing model tied to net profit, accounts that seem unprofitable on paper may not be; these “unprofitable” accounts won’t really be affected by things like your company’s IT cost or how much the CFO is paid, even though a net profit-based model assigns them an allocated charge for each of these functions. Based on this erroneous model, some reps may figure out that they can increase net profitability in their territory by ignoring “unprofitable” accounts. This isn’t what you want, and unless you’re willing to go through the effort of changing it, you may be missing out on opportunities to grow new customers.
In Selling Less, Making More is Too Good to be True, IRCG partner Mike Emerson outlines a better approach.
Mike Marks, author of Why Field Sales Must Evolve: The Gorilla in the Room, is managing partner of Indian River Consulting Group and specializes in helping distributors and manufacturers accurately diagnose problems and identify risk-bound alternatives so they can take their next steps confidently. Call IRCG at 321-956-8617 or visit ircg.com.