Archives For pay plan

Resellers can’t compensate sales people on revenue…

Chances are you compensate on gross profit (GP) if you manage a reseller sales team – and it goes without saying, if you are in sales, your compensation is based on GP.  But there is a bit of deception here that will take a business from profitable to unprofitable very quickly.  There are two places where money continues to leak from retained earnings – 2 holes in the bottom of the ship.

The one I am concerned about here deals with services compensation.

Speaking to Business Owners and Managers

Speaking to owners, VAR presidents, and sales management, are your sales people really paid on GP when it comes to services?  If you pay out based on services revenue, you are killing your company.  If you pay based on projected GP:  (sale price) – burden, you may still be paying on revenue.  Here is what I see happening…

The deal is sold for $1600 (as an example).  If the project is estimated to take 8 hours, the burden might approximate to $800 (using round numbers – yours will vary).  So the GP on the deal is simply $800, and the rep gets a percentage of this.   But what if the actual project time spent on the project is 2 hours over?  Is the cost of the project recalculated, raising the burden to $1000, and leaving only $600 in GP?  It should be.  If you keep the rep whole – by paying them on their estimate, this is actually still a revenue based payout, just at a different percentage than you pay on other things.  It’s revenue because you are not actually counting the true cost.

The Sales Person’s Perspective

The sales person at this point might argue, “But I don’t control the efficiencies of the delivery team, therefore I cannot be held responsible for the loss of GP.”  This is a valid point, but neither can the rep control the street price on product, yet GP is still the metric used for compensation.  When the sales person is compensated without taking the actual invoiced services into account, the company suffers financially.  My advice is to move your compensation to actual GP, and train sales people to value price their deals (meaning you are using fixed prices).  Chances are you can’t bill any significant overage anyway, so why fight this.  Sales managers should also be reporting GP by project on a regular basis to see which reps are accurately quoting services deals.  In most cases I find there is a pattern here.  One group will be on target, and this change won’t really affect them.  Another group will likely have a track record of under-quoting.  This group will resist the change, but the change is necessary.

But First

Before doing anything, make sure your top sales people’s projects are reviewed, and that you have a way to make sure they continue to make good money.  You don’t want to lose them.  Those who are mediocre or poor in performance, may leave – that’s actually good.  Redistribute your territories, rebuild your profits, and when the time is right, replace those who have left.  Your financial picture can be turned around in a matter of a few months.

© 2012, David Stelzl



Good Sales People Won’t Stand On Unemployment Lines

Talking with my son the other day (he’s sixteen right now), I was telling him, “Regardless of what you do in life, learn how to sell”. Unemployment numbers are high in the US, yet all of my clients are looking for sales people!  So there are jobs, but not jobs for just anyone….there is always a job for an excellent sales person.

Here’s the problem…

If you have great sales people, make sure they are happy!  Here’s a trend I run across frequently, and today is no exception.  I was talking with a top sales person for a large high-tech company this morning (one everyone who know the name of).  His sales last year were great – many of the reps I see on a daily basis would give a lot for the accounts this guy calls on, and would be living well if they closed the business he closed last year.  But 2011 is over, and 2012 is on us – so as you might have guessed, his quota is higher.

Raising quota is normal, so neither one of us are surprised.  The problem is, his management feels like they should double his quota, not because it’s low (and in fact it is far from low), but because he did well.  He shared with me, that the remaining money to be collected on just one of his Q4 deals would have bought a small house in 2011, but with the new comp structure, he can buy a half-decent used car with his Q1 collections.   What’s happening here?

A sales team has big hitters, those with potential, and a handful (which might be big or small) of non-performers.  Sales managers have a hard time letting people go, so instead of promoting large commissions for big winners, they tend to spread the wealth by propping up low performers.  By propping up, I mean setting ridiculously low quotas for one rep, while imposing astronomic quotas on their high-performance colleague.  Helping one person to make enough to live on even if they produce almost nothing, while controlling another’s income because if “just seems to high”.

Why This Never Makes Sense

When this happens, and it happens all the time, the bad performers stay, while the superstars look for new jobs.  For some reason, many sales managers are making choices to have a large sales team of mediocre performers, rather than a smaller team of big hitters.  Big hitters will always outsell the mediocre team – while costing the company far less to maintain – why would they do this.  I believe it’s fear.  It’s hard to fire people, especially when they are great people (great to spend time with on social occasions), with a forecast that always seems to sound good.  Everything is at 50% and is supposed to close next month…but every month, that same list rolls over to the next month.

The Goal Should be…

The goal of the sale team is to sell.  When managers choose to meddle with comp plans rather than replacing low performance sales people, they are making a trade.  It seems easier to change the comp plan, rather than sending someone out on the street in a bad economy.  But the trade off is this…sales managers can either fire the low performers, or the good people will leave.  You can’t have it both ways – you just can’t afford to keep everyone happy.

© 2012, David Stelzl

Sometimes calling high (meeting with CIOs), works out and you get the deal. Other times they make you feel stupid and treat you like dirt.  When this happens, remember:

  • You are a profit center (if you are in sales), they are a cost center – overhead
  • You get paid on commission, generally commensurate with the work you put in
  • They are reliant on circumstances largely out of their reach, to make their bonus
  • If they display this type of inhumanity toward you as a sales rep, they probably have a handful of friends that only stay around for the perks.

Present your best face, constantly be a source of enthusiasm, and demonstrate genuine gratefulness for the position you hold, your mission to help others make wise buying decisions, and the opportunity for character development.

© David Stelzl, 2010