Paying your sales force to sell the product of the future
Substituting purchased subscription-based services for hard company assets is becoming increasingly popular. This particularly true in the area of IT software and hardware services, where “cloud solutions” are rapidly gaining industry traction and favor.
Cloud solutions are offered by both hardware and software providers (or their channel-selling partners) to create both virtual processing capabilities and software ownership or access for the users of both. This allows the client to move from a capital investment model to a fully-supported leasing model and reduces the need for periodic major investment combined with ongoing support staff, facilities and other overhead.
We recently helped produce and participate in a webinar entitled Cloud Sales Compensation: The Challenges, The Solutions with Tom Horan of Cloud Business Builder.
In our webinar we provided the example of a traditional hardware and software reseller firm (not a manufacturer) that desires to keep pace with technology and market trends and rapidly grow its mix of cloud-based business and client base from virtually nothing to nearly 40% of its total business mix in just 3 years. This is clearly an attractive value proposition for the reseller in terms of avoiding technological obsolescence and creating increased financial enterprise value through steady and profitable multi-year contracts “on-the-books.”
While one can see and can quantify the benefits for the company, is the sales force also motivated by these same benefits? In short, no. We find that in the cloud-service market the sales force may be very conflicted regarding what is in their best interest. Why is that true? Typically legacy-product reseller sales pay arrangements are built around selling periodic and larger client sales of hardware, software or “plumbing.” If I can sell $100,000 of hardware today and get a $5,000 check versus signing a 5-year cloud-service subscription for the same total of $100,000 and get a $1,000 check, I know what I would be motivated to do.
Does this dilemma sound familiar to you?
While our recent webinar focused upon cloud-solution selling issues, we believe the two-step sales incentive compensation plan offered below would apply to any company trying to motivate its sales professionals to shift from focusing on its traditional (comfortable) products to rapidly adopting a new strategically-important product or service—the product of the future.
- Communicate with your sales force about the strategic importance of selling your product of the future (whatever it may be). If you expect a quarter of 2016 company (and their) revenue will be coming from this new product, be clear about it.
- Pull out the sales-compensation toolbox and apply a few reliable and proven methods and tools for getting the attention of your sales pros.
- Shake up or replace your current commission structure by paying more for strategic products than others. Say 2% of all sales, and 8% for strategic products (e.g.: cloud-service) sales—the amounts or ratio of old to new is up to you. But be sure that the strategic premium is only paid if annual minimum revenue expectations are met—such a practice also avoids commissions becoming energy-sapping annuities.
- To the above foundation, continue to shift the sands by applying a bonus or two with your new core commission structure (for example)—
- Pay a flat bonus (say $10 to $15,000) if your strategic-product backlog doubles or reaches an agreed-to amount by year end; and/or
- Pay bonuses for selling high-value-building products, such as multi-year service contracts, based upon the length of the contract—say $2,000 for 2 years, and $3,000 for 3 years, etc. [As a general rule: pay commissions as revenue is received, but bonuses can be paid at time of agreement signing.]
Other bonuses can also be considered based upon company objectives, but remember to be effective, any incentive compensation plan must be simple.
A simple and organized approach as outlined above can put you and your sales force on the same page in 2015, and assure attention is paid to your chosen product of the future.
Whether your sales force is selling cloud-services or another strategic product of the future, we believe our 2-step plan can be both an effective attention getter and revenue and profit producer. If you agree, start today making plans for your new 2015 sales compensation plan. Do not hesitate. Your competitors won’t.
Wilkening & Company has assisted clients for over 25 years as sales consultants with the design of effective sales-compensation systems using proven pay tools & techniques. The firm has provided advice to clients in the services business including software publishers and sellers. Have a question regarding sales force pay, call us at (847) 823-5090.