When I talk about compensation and commissions that drive success, many people assume that I mean, pay out more money, but I assure you, that is not the point. I simply mean, put your money where your plan is! When I look at today’s sales organizations and watch how the day to day execution happens, most sales reps run their own plan, mostly because no one has given them another. In almost every case, sales reps will find the loopholes in your pay plan and will line up every deal to max their payout.
When I hear dealers speak about wanting to transform a certain percentage of their business to managed services and find out that there has been no real change in their sales compensation plan, it typically doesn’t lead to success.
The numbers of dealers that try to lead their business without a serious marketing execution plan amazes me. Time and time again this creates the environment where sales reps typically won’t sell enough throughout the year to pay for themselves. Whose fault is this? This failure is a Business Owner, Sr. Management issue. By not having a crystal clear marketing plan, everyone in a sales role is forced to make it up as they go.
Think about your own company, when newly hired sales reps go through orientation and then are thrown into their territory with little more than a telephone, gas allowance and a “good luck” plan. A proper compensation plan should be an activity-based compensation for the funnel building stage. This means you specifically define in detail how many phone calls, appointments and presentations they must do to increase and/or maintain their income. By clearly defining the new rep’s activity they should end up in a position to successfully achieve their quota at the end of this onboarding phase.
A great compensation plan doesn’t turn mediocre sales reps into great sales reps. Great sales reps WILL recognize a great comp plan and they’ll drive themselves! You get what you pay for and your sales comp plan should pay for what you get!
One common situation I see surrounding sales compensation is that dealers are possibly too stingy when it comes to transformation and managed services. When this is the case, the sales rep’s response isn’t always an open rebellion; they’ll simply choose the easiest, shortest path to the most amount of money. Sound familiar? This is exactly like your company’s model. Managed services take up an enormous amount of time and if they aren’t going to be paid fairly, they simply won’t sell your services. You may think your commissions are fair, but if your reps aren’t selling what you want them to sell, you have to find out why.
If they believe you’re holding back on the coin, they will boycott and you’ll not make anything either. In this case one of you is wrong and you have to decide whether it’s them or you. If it’s you, go back to the drawing board and fix the compensation so they’re motivated to sell your service deliverables, and if it’s them, you might ask yourself if they’re right for your company.
So what’s the big picture here? I think it’s easy to see that most dealerships are lacking successful transformation to services, account retention and capturing new clients. So building the right transformation income opportunity for your sales team is very important.
A few other popular areas where I believe a tweak or two to the sales comp plan would benefit all, would be in preventing leases from being renewed way too early. To discourage the practice of renewing leases prematurely, you should look at a commission adjustment to deter this behavior. Why is this important? If you roll your leases too early just to fill quota, you’re probably going to make little profit on the deal and it’s a good possibility that your maintenance agreement will be adjusted downward as well. Today, most leases are sold with a “lower cost” benefit and thus keeping your leases in play for as long as possible is usually best.
I would also suggest that you tie your lease renewal payout percentage to the rep’s new business attainment quota. So if they satisfy their new business plan for the month their renewal commissions would pay them at 100%. If not, then their renewal commission would be adjusted downward to match their new business results. If their new business attainment were 70%, then they would be paid 70% commissions instead of 100% on that month’s renewals. This keeps them focused on growth and not just living in your portfolio. Obviously, exceptions can be made when competition causes the lease-renewing situation.
Another area of concern and not far from the first situation is when a sales rep lowers the maintenance agreement to add profit to the hardware sale. This is amazingly popular across the country and is a very easy fix. If a lease renewal incurs a drop in either monthly maintenance or click charge, the house has to recoup those moneys and they should be taken out of the deal at the time of sale. Did you ever notice that the majority of lease renewals are quoted to a client with a slightly lower payment than the previous lease? Why is it that no one goes in and says, “Your new MFP or printer has some great new capabilities that I know you’ll use and is only $25.00 a month more than your previous agreement”? It simply doesn’t happen. Written correctly, your sales comp and commission document should protect the dealership from sales reps that lower maintenance (that they don’t get paid on) to hardware (where they do get paid), just to make a deal happen.
So if we focus on your need to transform your business to managed services, there are many ways to design your sales compensation plan to drive this objective. Both sides of the house, new business reps and account managers get to contribute to this goal. With the account managers, we simply design a compensation plan that requires a certain percentage of managed services sales secured from the client base. As long as it’s a reasonable requirement, then, like before, their payout on renewals would pay according to their success in the managed services sales quota attainment.
On the new business side it’s best to have a team completely devoted to securing net new clients. This team has zero distractions and can spend 40 hours per week setting new client appointments. Like a new employee they’ll require 90 days for building a pipeline. Their compensation plan will pay them for activity first and then, more than likely a total contract value compensation plan. This position will require a true hunter personality and is typically going to cost you more in base than the normal hardware sales rep. The good news is, when they start to get traction, 5 or 6 of the right kind of deals will produce significant growth. Most of these jobs pay a monthly residual also based on quota attainment.
Misaligned sales compensation is like getting on a ship without a rudder—you won’t really know where you’re going and you won’t know when you’ll get there. Put a rudder on your ship and design your sales compensation plans to take you exactly where you want to go!