Keeping your sales staff satisfied – Print21 magazine article

Working out how to remunerate your sales force can be one the trickiest and most contentious areas of managing a print company. Peter Barnet outlines the principles behind designing a pay and reward system that works best for the business – and the reps.

Many business owners and sales managers have asked me recently about how they should pay their sales force. What is important and what is the best way to get maximum impact? How to drive sales? Based on experience across a number of industries, my response is that you should consider many components to create a plan that both fairly compensates and adequately motivates the sales team. Ultimately, your plan should keep your salespeople happy while supporting and advancing your company goals.

Methods for creating a compensation plan can vary widely and often reflect industry-specific standards. However, some ground rules cut across industries and can provide a framework for establishing or reviewing your company’s sales incentive package. Some of the more important rules include:

* Start with the outcomes and behaviours you want to foster
* Prioritise behaviours
* Keep the incentives flexible so that they can evolve along with your company’s goals
* Make the compensation plan easy for everyone to understand
* Benchmark your competition to stay competitive, and
* Review regularly for relevance.

Start with results
Of fundamental importance is to determine what results you want to encourage and to design your plan from there. It sounds obvious but I have seen many reward schemes that encourage sales at the expense of profit and collections. It is important to encourage profitable growth of your business through firstly encouraging and rewarding the right behaviours.

A sales team’s goals should reflect the company’s larger goals. Consider reprinting corporate goals in your sales agreements to underscore a unified purpose. For additional clarity, you may want to include work objectives, even if they are not tied to commissions.

Every incentive in a commission plan is a carrot, but some carrots can be larger than others depending on the behaviour they reward. Prioritise the behaviours you want from your sales force and then set up a system of rewards that encourages top-priority behaviour, as well as motivates salespeople for situations that are clearly distinguishable.

For example, you may want to commission third-party products, such as design or digital print at a different rate. This encourages services that you may make a higher margin on, so why not reward it differently? I have also seen a successful implementation of an accelerator plan which provides flexibility in the commission percentage earned and paid. In this case, salespeople are paid at a lower rate until they meet their target. After that, they are compensated at a more accelerated rate for every dollar they generate in excess of the target.

Keep it simple
A commission plan needs to be easy for your sales team to understand. Not only do sales people need to see clearly what is motivating them but also you don’t want to spend your time haggling over commission payments.

Clearly identify how commissions are earned and keep the calculation formulas straightforward. You can check your plan’s simplicity by creating a few sales scenarios and asking the sales team to derive the compensation. If the plan is easily understood, everyone should come up with the same numbers. If different figures are calculated, maybe consider reworking the plan.

If you want to retain a top-level sales force, your plan also needs to be competitive. Gather intelligence on how your competitors compensate their sales professionals. You can figure out what commission levels are reasonable and competitive for your industry or profession through an internet search at a source such as <www.seek.com.au>. Or simply ask what others do whenever you meet someone.

If you have developed a business that people want to work for, you should always be talking to potential employees to have a ready list of candidates if you need to hire. This will also give you a pretty good insight into the market rate of pay and rewards.

Commission is the core
At the core of any incentive plan is determining what role commission plays in the overall sales compensation package. Four of the most common commission structures are:

* Commission only;
* Commission plus salary;
* Commission plus bonus; or
* Commission plus salary, plus bonus.

Although industry standards carry significant weight when creating a commission structure, ultimately your budget and priorities will determine how you pay sales professionals. The last three are generally applicable to the graphic arts industry.

Again, when you hire sales professionals, they should immediately understand their earnings potential. For example, if you are paying commission only, you can specify that the commission will be X per cent of the net sale, less any discounts. Or you can define a base salary along with a target commission amount – the amount the salesperson would earn at 100 per cent of quota. You might pay 50 per cent base and 50 per cent commission, or 80 per cent salary and 20 per cent commission.

If you pay bonuses, you’ll need to determine not only the percentage but if they are based on company-wide goals, individual goals or both.

If multiple salespeople do the same job, their commission compensation should be equal. On the other hand, if job responsibilities really are different, these expectations should be spelt out and compensated for appropriately. You might want to reward salespeople through higher base salaries for length of service, experience or stellar performance. Most importantly, be clear with your sales staff and apply any differences consistently.

You will need to address what commission is applicable to first-time sales as opposed to sales to repeat customers. By establishing higher commission percentages for new accounts, you encourage your sales team to bring in new customers. Equally, you don’t want to discourage sales to existing customers, as this is a strong sign of customer satisfaction with the product. It may be better to pay equally, but to award a bonus to each salesperson who brings in X new customers in a given period.

Get the timing right
Your plan will need to specify when commissions are earned. Some options include payment at the time of invoicing or product delivery, when the customer payment is received or a combination thereof. Paying full commission when a sale is invoiced or when a product ships has the inherent risk of paying out the salesperson on what may be a slow or non-paying customer. To alleviate this risk, some companies pay commissions only after customer payment is received.

Another strategy is to pay 50 per cent of the commission at the time of invoicing as long as certain conditions are met, with the remainder payable at cash collection. You can put in the plan that anything uncollected for more than X number of days past due will be removed from commissions, motivating salespeople to assist with collection follow up. This does work!

The ‘certain conditions’ part of the commission agreement is for behaviours you want to encourage. For example, you might specify 50 per cent commission payment for sales containing net 30-day payment terms. For sales with net 45-day terms, commission might be paid only when the cash comes in.

Another condition might be pricing in accordance with the internal discount guidelines. If salespeople get any additional discount approved beyond the guidelines, then you pay a proportionately penalised commission percentage, or pay only when the cash is received, or both.

Having the right reward and recognition scheme in your business is a critical part of creating a culture of success and goes a long way to delivering the sales results that you desire. Following these ground rules may just help you design a system that works for you.