The first principle of any good compensation plan is that it "pays for persuasion." "Otherwise all we need is a good website," said Randy MacLean, president of WayPoint Analytics at the firm's Advanced Profit Management Conference last week in Arizona.
MacLean was presenting the benefits of a Net Before Compensation-based plan that rewards profitable sales and dissuades the unprofitable. He argued against using Gross Profit as the baseline for sales commissions, saying that it does not account for operating costs consumed in serving an account; incents inventory growth and looser credit; and puts a "floor" under compensation levels. He said GP-based compensation can be disconnected from corporate objectives.
He also discussed transitioning to a new compensation plan – arguably the biggest challenge in this process.
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So how can you successfully transition to a new plan while keeping the peace – and your best sales reps? MacLean said to focus on protecting service for key accounts first. Make sure the customer is not affected – the transition should be transparent in a customer's eyes. The customer is more important than the salesperson in this transition, he said.
Then protect your most valuable reps; but first, use the data you've analyzed in creating your new sales comp plan to determine what "valuable" means from a profitability perspective.
Territory realignment is sure to be necessary in any kind of sales compensation transition – as the goal is to improve profitability overall. When realigning territories to better utilize your sales talent and meet strategic goals, look beyond just geographic territories, he said. Consider profit value, strategic value or end-market sector. Or consider creating a "special project" territory that a star sales rep can focus on turning around (with a different set of goals he is compensated on). On the flip side, put the best accounts in the hands of the best salespeople.
Distribution veteran Bruce Merrifield of Merrifield Consulting, also speaking at the conference, said that first and foremost companies need to have the right people in leadership positions when making a change in how they do business. Before incentives can work, a company must have a solid strategy driving the change, flexible systems to support the change, "great people" to implement the change, and education/training on necessary skills.
Related:
Align Selling Resources to the Market
All GP Dollars Are Not Created Equal
