by Raegen Pietrucha
When dealers talk compensation plans for their sales staff, the majority of the conversation naturally revolves around — you guessed it — money: how much will be dished out, in what fashion, etc. These are important decisions that can make or break a business, and they have in fact been addressed many times in the pages of The Imaging Channel and beyond.
But no matter what final dollar amounts your dealership decides upon or whether you choose equipment-based compensation, page-based or service-related annuity, a hybrid of these or some other type of plan entirely to distribute them, there are four additional critical factors to take into consideration when formulating a compensation strategy. Mark Shelton (principal of MPS Results), Luis Gonzales (founder of SalesScoreKeeper.com) and Chris Wiser (founder and CEO of TechSquad IT) provide insights on the compensation plan essentials that will not only keep your sales staff happy, but will keep your company safe and successful.
Know your ultimate sales goal, then incentivize related sales behaviors
As a dealer, you know your goal is to run a profitable company. And your salespeople know their goal is to sell. But knowing these two things really isn’t enough to formulate a truly strategic compensation plan. “There’s no one-size-fits-all type of (plan out there),” Wiser said. “There are going to be multiple things (to consider) that are going to depend on the business model.”
So to truly succeed, a dealership must understand itself from the foundation up, as Wiser points out. Each company has its own unique position in the marketplace, and that position will (at least in part) determine the best way it can make money. Some dealers in this industry handle equipment sales. Others combine that with MPS. Still others have moved into providing additional managed services beyond print. Since these businesses have different offerings, they naturally have different end goals; subsequently, they must employ different strategies to achieve those various goals.
“If I was going to build a compensation plan for my company today, the first thing I would do is write down the things that I want,” Gonzalez said. “Do I want growth? Do I want machines in field? Do I want new MPS contracts? Do I want gross profit? Do I want to chase new customers? Do I want to grow my current customers? I would list all the things I want from my sales department, then I would tie compensations to those behaviors.” Once you’ve established this list, a deep consideration of both your business’s core competency as well as what types of sales are sustainable and make the most money for it will help guide you toward choosing the right sales behaviors to incentivize through your compensation plan.
And what might some of these “right sales behaviors” be? Across the board, gaining net new customers should be incentivized, Gonzalez said. “Gross profit drivers and revenue drivers are common, and that’s a good way to incentivize also,” he added. You may also incentivize the way a contract is written — whether what’s sold is bundled or not. The amount of money you’ll pay a salesperson for each item you’ve incentivized can be informed by the priority and profitability rankings of each particular behavior as it relates to your ultimate goal.
From there, the behaviors compensated for will depend on the type of dealership you have. If you’re an equipment dealership, for example, you may incentivize new machines your reps put out in the field. If you’re an MPS dealership, you’ll typically incentivize the number of pages put under contract. Going beyond — perhaps into additional managed services — services-based annuities would be incentivized. You can be creative with what behaviors you’ll incentivize, but they should always reflect the goal of your individual company.
Get some good tracking and administrative tools
Just as page-monitoring software helps a dealership gain insight into clients’ behaviors, related profits and ideal prospects, certain tracking tools help a dealership understand its internal sales failures and successes. Although “one of the biggest challenges is tracking all the metrics and making sure all that stuff is in place,” Wiser said, it must be done nevertheless.
Utilizing customer relationship management (CRM) software allows you to track a broad range of activities from prospecting to closing: the number of calls made to new prospects, in-person appointments landed, assessments conducted, etc. And combining this with an accounting or enterprise resource planning (ERP) package allows you to decipher what sales activities are putting the most cash in your pocket. With CRM and ERP software, “you can see at a glance whether you’re achieving the profitability that you planned to,” Shelton said. “If you’re not, you need to be able to drill down with sufficient detail to be able to find out where you’re bleeding” and stop the hemorrhaging.
Ultimately, though, your reasons for tracking sales activities will be multifold. While you want to understand what’s effective with customers and you want insight into how your sales team is working, you also need to be able to pay you sales professionals properly. “A lot of people can come up with some very good comp plans with a lot of triggers,” Gonzalez said, “but it seems that … how to administer them and how to deploy them … is very, very difficult. (In fact), deployment may not be as difficult as actual execution and administration in the long term.”
As the saying goes, you can’t manage what you can’t (or don’t) measure, so making sure you’re paying your salespeople the correct amounts for the particular incentivized behaviors comes down to tracking the behaviors in the first place, then seeing how much you’re willing to compensate for those behaviors based on how profitable they’ve historically been for your company.
Gonzalez raised one more important point with respect to this topic: “We know how many calls a technician did, how many parts they used, what they had for lunch and where they’re going for dinner. We know everything about a technician. We have all these tools. But yet, where a lot of our profit (comes from) and a lot of our money is spent — in some cases, 40 percent or more of the total payroll — (is with) the sales department, (and) we don’t have those tools, and we don’t have that good of tracking (there).” Now that’s something to think long and hard about.
Keep your sales staff motivated
While it may not seem like an issue your compensation plan should attempt to address, given the following — and seemingly unshakable — belief held about salespeople in general, it’s one worth considering: “What the salesperson tells you and what he (or she) does are both driven by compensation. (Salespeople) may tell you they’re going to do something, but they’ll certainly do something if they get paid to do it,” Gonzalez said.
If a salesperson’s actions are truly guided by the almighty dollar, it’s pretty clear how important getting that compensation package right is. Still, a delicate balance between what’s right for your salespeople and what’s right for your company must be struck. “I think the hardest thing … is coming up with a base wage that doesn’t make (salespeople) complacent, that keeps them driving and keeps them hungry, but then also … (is) reasonable for you to implement,” Wiser said.
Oddly enough, hiring the right salespeople from the start may actually enable you to pay them better from the get-go. “Anytime you cycle through people on a regular basis, it costs you a lot of money as a company,” Wiser said, “so making sure that you have a strong interviewing and hiring process is (important) because then you can put in a really solid compensation plan that’s very feasible, and you can actually take some risk on them — e.g., higher base pay.”
Successfully formulating the ideal compensation package for your wisely chosen sales staff out of the gates is great, but as many dealers have experienced, the challenge of remaining profitable really rests in keeping those salespeople motivated over the long term. One thing that helps is an explanation of your company’s sales strategy; “provid(e) … an educational process to salespeople so that they understand that if they invest the extra time required, the reward at the end of the tunnel is going to be bigger,” Shelton suggested.
But again, getting back to that idea that money is the ultimate motivator for salespeople, you’ll likely need something beyond mere instruction — some kind of financial catalyst or, in this case, penalty — to get the job done. “I learned (something) a long time ago — in college, actually, in a psychology book — and I’ve applied it in business ever since because it’s very, very true: To not have negative consequences for below-standard performance is exactly the same as rewarding below-standard performance,” Shelton said. Therefore, he recommended establishing standards with respect to tasks that can be measured concretely (such as the number of calls, number of proposals, number of new clients, etc.) — and if those performance levels aren’t achieved, your salespeople should experience some sort of consequence. Shelton refers to this consequence as “a leak in the bucket” in your compensation plan that you deliberately build in, and this leak can be reset every quarter on an as-needed basis if you design it as such.
Say, for example, your dealership set a target of 150,000 new pages under contract per quarter per salesperson, and one of your salespeople only sold 120,000. Do you compensate that person at the same rate as the salespeople who hit the goal? Not if you’ve established a leak in the bucket. Because one salesperson missed the mark, the rate at which he or she will get paid for 120,000 pages will be different than the rate that those who hit the 150,000-page goal will be paid.
In the above example, it’s pretty obvious how an underperforming salesperson might be inspired to work harder to meet the goal the following quarter. But penalties for doing the bare minimum or resting on one’s laurels can both be built into the compensation plan as leaks in the bucket as well, keeping those who easily achieve company goals motivated too. “If suddenly that (top) person’s high, six-figure income is going to get cut in half because of a penalty for nonperformance (this quarter), maybe they’re going to work,” Shelton said.
Of course, honey attracts more flies than vinegar, so additional financial rewards and incentives beyond salaries and commissions — trips, gift cards and other perks — can be given to successful salespeople in a effort to further motivate them. But Shelton encourages a balance between reward and repercussion. “Understand that positive reinforcement mechanisms like that only have value if there’s a negative reinforcement mechanism on the back side; that’s that leak in the bucket, the kick in the pants,” he said. “Otherwise, people start to take it for granted and start to expect it, and then it’s not special … (or) motivating anymore.”
Sign compensation contracts with your salespeople
You sign contracts with your customers before you provide them with paid goods and services, and you consider this a critical step in the business relationship. Why? Because it provides you protection, it provides your clients protection, and it develops a clear understanding between both parties. So why wouldn’t you apply this same logic to your sales staff?
Many companies have general contracts that each employee signs when hired, but in the case of a salesperson — whose compensation is generally structured differently than any other type of employee — a more tailored contract is a must, especially if your dealership has never dealt with long-term client contracts that get paid over a significant length of time. “You need to set up protections for the company in your HR handbook as well as in a written compensation program plan for each individual salesperson,” Shelton said. “If you don’t, you can expose your company to some real hazards, and you can potentially cause yourself some real headaches.”
Consider the case of a salesperson who, satisfied with the residuals that were already being garnered from current clients, decided to take a year off. Or think about another salesperson who left one company to work for a new employer but still wanted the commissions off the client contracts won while at the former employer’s. “(If) there was nothing in the reseller’s HR handbook or written sales program that’d been signed off by the employee, in most states, you’re going to have to continue to pay them (both),” Shelton said.
Perhaps the most important — and overlooked — compensation plan essential of all, the importance of employment contract between dealership and salesperson cannot be overemphasized. The key rewards reaped from such agreements between dealership and client — “making sure that the boundaries are set on both sides, making sure that the deliverables are set on both sides, and making sure the terms are set on both sides,” Wiser said — will be delivered to you and your sales staff via a compensation contract as well, and they will truly position your company for success.
Compensating to win
No matter what the business, sales will nearly always be at the core. And no matter what compensation plan is devised for sales professionals, a solid understanding of company goals, a utilization of the right tools, a stockpile of ways to keep sales staff members motivated, and contracts to protect the business will serve any company well. A smart compensation plan generates an organized, focused and driven team — and once you’ve accomplished that, the sky’s the limit.