Compensation Planning for Managed Print Services

by Mark Shelton

Recently I worked on developing a comprehensive managed print services program with the business principal of a large reseller company. They had multiple locations and a large sales and technical staff. The business principal was absolutely convinced that MPS was the way of the future for their business and championed the effort all the way down the organizational chart. He was charged up and his enthusiasm was infectious! As we completed the MPS training programs, everyone in the organization matched his excitement and eagerness to launch the program.

We had created the business and operational plans, established sales and delivery mechanisms, and crafted a marketing program to warm up the market for the sales launch. Everything seemed to be in a high state of readiness and everyone in the organization expressed genuine excitement at the possibilities. Great success was predicted and expected for their MPS program.

However, 90 days into the program, the business principal called me up and related his disappointment that they just weren’t getting the amount of traction they had planned for. He could not put his finger on why, and asked me to help determine what the problems might be.

I went down my checklist of action items and everything seemed to be in order. However, when I met with the sales representatives as a group, they expressed a lesser degree of excitement and commitment than I had observed in previous encounters with them. Upon questioning, I found that their lower level of commitment had to do with the fact that they had no idea how they were to be compensated on MPS sales. Although we had crafted a compensation program specifically for MPS in our overall business planning, the business principal had not yet released it to the sales staff. When I asked him why this was, he told me that he thought it would be confusing to the reps to announce it before they had any MPS sales.

This prompts the question, do you have a compensation plan specific to your MPS program and have you told your sales people about it?

Sales people in all industries are basically “coin operated,” that is, they behave in ways that provide them with coins, or more succinctly, income. They tend to not behave in ways that do not provide them with a clear path to income. To generate traction with your MPS program, it is essential to establish a compensation plan that is specific to MPS sales and clearly communicate it to your sales staff. MPS compensation plans need to be designed to incent the pursuit of getting pages under contract, and as such, they must vary from compensation plans for transactional sales to motivate proper sales behavior. Keep in mind that MPS is a financial sale, not a product sale. MPS generally has a somewhat longer sales cycle than a transactional sale, and it requires prospect contact at the executive level to optimize the opportunity for a successful outcome.

Optimized MPS Sales Compensation Plans

An optimized MPS sales compensation plan must do the following:

  • Incentivize the sales specialists to achieve ever greater numbers of printed pages placed under a managed, long-term care-and-feeding (service and supply) program provided by your company.
  • Allow the sales person to build an income stream that provides them with income every month based on the number of pages they have sold into long-term care-and-feeding contracts.
  • Pay a stated monthly amount for the coming quarter based on the total number of pages placed under contract by the sales specialist as of the last quarterly evaluation. It is adjusted every quarter to reflect the number of pages sold under contract by the individual sales specialist.
  • Continue to pay the sales specialist over the life of the care-and-feeding contract, so long as they are still employed by your company in a commission-earning capacity.
  • Provide additional compensation for hardware sales that are crafted into, or come about as a result of, an MPS care-and-feeding contract.
  • Clearly establish and communicate sales perfformance targets in terms of new pages placed under contract and new accounts generated.
  • Contain a clearly communicated negative reinforcement mechanism for below-standard performance.
  • Be in a written document, specific to each individual sales specialist, and signed by the sales specialist as a condition of employment in the MPS business unit.
  • Be supported by language in the company’s human resources policy handbook.

To summarize, an optimized MPS compensation plan will drive sales of page-based, long-term contracts that may contain or provide for new equipment sales. It sets specific targets for the number of pages per month to be sold, as well as targets for the number of new accounts to be developed into contract customers. It will also have specific evaluation time frames set and will contain clearly defined consequences for below-standard performance.

Compensation Plan Types

An MPS compensation plan will include payments for pages under contract in addition to payments for hardware sold. Together, these two compensation types help you grow your MPS program while experiencing strong hardware sales.

Page-based Annuity

A care-and-feeding program for existing fleets of equipment results in a long-term contract that will include a certain number of pages to be invoiced each month. To incent achievement of these types of contracts, it is useful to compensate the sales staff on the number of pages they have placed under contract. It is also highly motivating if the sales staff can build their income over time by adding more and more pages under contract. Compensation based on the number of pages a sales person has placed under contract is a very powerful, performance-based compensation concept. This will drive sales achievement.

Equipment-based Compensation

If you have historically sold hardware, you probably have a hardware sales compensation plan in place. If so, and it works for you, stick to it. Changing it now will only breed discontent in your transactional sales force and cause them to lose focus. You should apply it to your MPS hardware sales as well as transactional sales.

Hybrid

Comprehensive MPS includes both equipment refresh and the finance piece with a care-and-feeding program. Here you can utilize both types of compensation as the company will derive revenue and profit from both areas, and you want to incent achievement of both. I have found that we sell more hardware by not trying to sell hardware than we ever sold when we were trying to sell hardware.

Compensation Structures

You can choose from common compensation structures for your MPS sales specialists.

Straight Commission

Some of the most motivating and successful MPS compensation plans we have designed provide a guaranteed income for the first six months to a year of an MPS sales specialist’s tenure, and then revert to a straight commission program. This gives the specialist time to build a base of pages under contract that will become the foundation of their income structure, and motivates the sales specialist by providing unlimited opportunity to create income. The specialist continues to be paid on the total amount of pages they have placed under contract for as long as the contract runs. Additional income is created by continuing to add new page contracts and by including hardware sales.

Commissions with Draw Base Salary

For those who are motivated by a bit more security, providing a draw base salary and then upward income mobility from commissions may be more appealing. The company then shoulders some of the risk of success along with the sales specialist. It is recommended that the draw base be paid out over 52 weeks as a constant, to minimize administration. No income in excess of the base should be paid out until the base is completely earned. Additional income over the base is created by continuing to add new page contracts and by including hardware sales.

Example: Straight Commission MPS Sales Compensation Plan for Care-and-Feeding Contracts Only

This example of an MPS sales compensation plan shows only black contracted pages. Color pages can be added in a similar manner, and a line item for hardware could be included as well.

 

Performance Targets

Target

Actual

Variance

Leak

Quarterly pages contracted

250,000

224,587

(25,413)

5%

New accounts developed

3

2

(1)

5%

Actual Performance  
Total monthly pages under contract as of last quarter—black

1,974,324

Total monthly pages sold under contract this quarter—black

224,587

Total pages under contract—black

2,198,911

Average price per black page

$0.0156

Total revenue for black pages

$34,303.00

Average GP percent

40%

GP dollars produced

$13,721.20

Commission payout

25%

Plan monthly income earned for this quarter

$3,430.30

Bucket leak—leak of monthly income earned—pages sold

($171.52)

Bucket leak—leak of monthly income earned—new accounts

($171.52)

Sales specialist monthly income for this quarter

$3,087.27

 

Compensation Plan Execution

The following components are critical for successful execution of an MPS compensation plan.

Quarterly Review

Each quarter, MPS sales specialists should have their performance reviewed and compared to benchmark targets set by management as determined by the overall business plan. Adjustments to targets and to the specialist’s monthly income for the coming quarter should be made during the quarterly review.

Goals and Expectations

In addition to setting basic sales performance targets, consider all of the goals you want accomplished by the sales effort. Do you want to establish new accounts, increase total share-of-wallet for existing accounts, obtain large volumes of pages under contract, or increase hardware sales? You can establish requirements for accomplishing related tasks while only paying for primary targets, such as pages contracted and hardware sold into a program. Keep this in mind as it becomes a powerful mechanism for growing your business.

The Leaky Bucket

Regardless of how you construct your compensation plan or what achievements you pay commissions on, it is important to establish a “leak in the bucket” so that the company has a method to apply a negative reinforcement result to substandard performance. Since sales people are indeed coin operated, be sure to include a hole in the income bucket where coins leak out if goals are not achieved or performance is below acceptable thresholds!

Rules of Engagement

How will you get your transactional sales reps and the MPS sales specialists to play nicely together? This problem will be an impediment to your MPS program unless you establish a community of mutual interest between the two sides of the house. They need to realize that by collaborating they are not competing, and together they can create a lot of value for your company and for the customer. Create a plan to split sales credit or commissions between the two, with a higher portion going to the sales rep who initiated the MPS opportunity inside the account. A community of mutual interest and benefit has been created!

Business Considerations

To avoid running into unforeseen problems, consider the following items before launching your MPS compensation plan.

Gross Profit Payout

For MPS, it is recommended that you pay out no more than 25 percent of the gross profit produced by page-based contracts, hardware sales and contract renewals in commissions. This amount provides fair and ample opportunity for each sales specialist to earn a handsome income. And, while it may seem miserly to some as they observe from the outside, the truth of the matter is that as your MPS business grows, the company will incur some fairly heavy overhead increases. It will become necessary to hire additional support staff for the MPS sales specialists to hand off due diligence work, such as assessments, deal craft and long-term management of existing clients. Burdening the sales specialists with these administrative tasks dilutes the amount of time they have available for new opportunity development.

Written Compensation Plan

Since you will be paying commissions out over the lifespan of long-term contracts—perhaps for the first time in your experience—it is prudent to consider what should happen if the employment status changes for a sales person. For example, Sales Person A sells a five-year MPS contract to Company XYZ. According to your compensation plan, they are set to collect a monthly income from the pages under contract for the next five years. However, in year three of the contract, they decide to leave your company and work elsewhere. What happens to the commission that is scheduled to be paid from the end of their employment through the end of the 5-year contract? Certainly, it should be a business decision on your part as to whether to continue to pay even after the sales person has left your company, and your state may have some regulations about how this type of situation is handled. By establishing in writing at the point of hire what the disposition of such situations will be, you can insulate yourself from having to pay former employees after they leave. Left unaddressed, this situation may leave you liable for things you don’t want to be liable for. Address it in your written compensation plan and then back that document with supporting language in your written human resources policy. Make reading and signing both of these documents a condition of employment for all sales specialists. Keep in mind that it is poor business practice—and most likely illegal—to terminate someone to avoid having to pay them an earned commission! Get legal advice to determine what the requirements are in your state, so you are certain to craft a written agreement that is legally enforceable.

Human Resources Policy

You should have a written human resources policy in your business that, as a condition of employment, each employee is required to read and sign off on to confirm they have read and understood the policy. If you don’t, you should prepare yourself to be sued by any present or former employee who has an ax to grind. If it hasn’t happened yet, it will. And, without such a foundational document and process, you should go even further and be prepared to lose the case on any human resource issue they might press. Especially in the area of compensation!

Conclusion

If you are experiencing a slower than desired pace of success in MPS sales, revisit your compensation plan for MPS. And, make sure your salepeople understand where and how their coins are earned so they can perform in a manner that allows them to create their desired income!

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