So, Your Sales Bonus Plan Has Not Paid out for Two Years. What to Do in 2011
I guess the above title line says it all. It has been a tough two years for many companies and their sales forces. During that same period Wilkening & Company has provided ideas and advice on what to do when your sales compensation plan is not working due to lower-than-expected results, or other factors. But many of these steps have been exceptional (or discretionary) in nature and provide little direction on what to do to restart your sales-pay plan (and your sales force) for 2011. Let’s look forward today.
So why not leave all of your current sales processes in place? Won’t the market just recover like always and everything will work again in due time? We do not think so. We believe that it is quite possible that markets and customer needs and requirements, have drastically shifted during this most-recent recessionary cycle (more in every box, faster delivery, hold more inventory, lower cost, better than theirs...). We now see some of this in our business and we would bet you also do in yours. Further, we also believe that there is a greater focus than ever on Big-account marketing, and intense competition to steal your Big accounts from you. This is what we believe you will face as this recession winds down.
It sounds like 2011 will be a good time to retool both your sales processes and sales pay systems—under any circumstances. And, you also should take the opportunity to begin to rebuild the confidence of your sellers. What should be done? We suggest a two-step plan—re-plan & pay.
First, re-plan your market and accounts.
- Identify the accounts that you want to own (and we mean own). Generally, these will be the market leaders and current or prospective buyers with the greatest upside opportunity.
- Decide what you need to do to retain, grow or gain their business. Define such actions in discreet and measurable actions or steps—sell them new Product A, improve delivery performance, double order size, become the specified supplier on their new line of business…
- Put 2011 annual sales or profit-dollar amounts on each action taken in the above step, and develop a real (we mean achievable and likely uncomfortable) sales forecast for each and all accounts in your portfolio.
By doing this, you are breaking the standard-operating-procedure mentality and are zero-basing your sales book. Have each sales representative create their own sales plan (as above), and then commit to do what they have just said. By the way, if everything is scheduled to happen or be completed in the Fourth Quarter, it likely won’t happen at all.
We have talked about sales planning in the past and we urge you to go back to basics for 2011. Use our approach—or any other approach—but you need a 2011 plan and the commitment of the sales force to execute it. No less is acceptable.
Then, let’s gently put a wrench and screwdriver to your 2008-10 sales-pay plans. How so?
- Only make changes in salaries or draws if you believe that they are significantly under the market, are undermining the efforts of your sellers, or risking the loss of key players to competitors; at the first sign of an upturn. If salary changes are needed, there are simple actions that can be taken to fix the problem. But, it will cost some money (but who cares, if we sell more in 2011 than last year and keep our key people in place).
- Many sales-pay plans primarily compensate based upon annual (or more short-term) sales or profit results. Often these are commission-based or incentives with or without annual goals or objectives affecting the total amounts to be paid. A large portion of the sales-representative’s compensation is generally tied up in this type of pay arrangement. Commissions or incentives can account for anywhere from 30% to 200% of annual salary. If you use such a model, and it currently pays out (say) 50% of salary when the sales representative meets company expectations—however defined—cut the incentive amount in half (to say 25% of salary) for 2011. Be calm, we did not just tell you to cut pay; only to redirect it. Read on
- Take what you have just removed from the traditional annual incentive or commission component of your sales-pay plan and channel it into a series of two or three bonuses for the sales force that are tied directly to theirnewly-written sales plan. Pay them to achieve the 2011 objectives, goals or events they said they would. A few examples that we have seen used are (of course, ultimately adapted for your metrics and goals):
- Number of new accounts with over $100,000 in potential acquired by year’s end and having active orders;
- Total number of all accounts with over $100,000 in potential having active orders at year’s end;
- Sales growth from total account portfolio at or exceeds 10% year-over-year;
- Gross margin (in dollars) at or exceeds $1,500,000 for the year;
- Sales of product A for the whole account portfolio is at or exceeds 20% of all sales;
- Average order size is increased by 10% by year’s end; and
There is no magic in the above listed examples, but they generally represent things that can be done to help the company succeed; whether total sales goals are met or not. This does not diminish the importance of the sales goals, but recognizes the need for the sales force to do a variety of things to succeed in the long term; and compensates them for it.
Traditionalists will likely reject our prescription for changing your sales pay for 2011 out of hand, but may fail to recognize that it focuses on paying the sales force for doing the “right” things and gives them a half-dozen ways to be a success in the coming year. While we are recommending this “new” and revised approach for 2011, we are also finding that balanced plans of this type are becoming more common and may represent a path you want to take beyond 2011 as well.
If your sales force and its sales-pay plan have been struggling since 2008, consider making the changes of approach we have outlined. You may have little to lose. Or, if you just do not like your sales plan for other reasons, consider this roadmap for shaking up your sales force in the coming year.