Bruce Merrifield, President — Merrifield Consulting
•profit analytics •profit strategy •QPM •Quantum Profit Management (QPM) •sales management styles in distribution
Wednesday, May 30, 2018—Optimizing Salesforce Pay Through Deep Data Analysis
How we pay our sales representatives and even what sales means is changing by the day. Companies are developing more and more sophisticated approaches to sales compensation and here Bruce Merrifield and Randy MacLean of Waypoint Analytics examine the most significant trends.
Companies in North America are frequently giving away 50 to 60% of their profits to their sales force. Based on these numbers, the company itself is apparently a junior partner to the sales representative. It is a shocking idea, but the numbers bear it out. Consider your net-before-compensation (NBC). After you've paid for and prepared your product and run it through your operation and infrastructure, the money you have is your NBC. This is the bottom line of the company, including all pay, commissions, and bonuses. Your sales force is a tremendous expense but the rate of pay for your sales force has not kept up with the available technology or the general evolution of the workplace. Many companies are using old models when determining pay.
Instead, sort your sales representatives by their NBC. By doing so, you can identify unprofitable territories and pay that is not commensurate with your profits. Furthermore, you can drill down to the customer level. This level of detail is critical. As Bruce and Randy point out, you should never make business decisions based on averages. Averages tell you what the sum total of everything is together, but individual items will vary from the average by quite a lot. You will always lose when the reality does not match the expectations built on an average.
Digging into your data will show you how to optimize your profitability. This analysis will allow you to ask and answer important questions. Is your top-compensated representative truly the most valuable person on your sales team? You might also identify the five or so customers who have such a high cost-to-serve that they are killing your profits with inefficiency. You need to dig into your data to understand how your sales team operates and drives your profit – your NBC.
Sales has been the last place to embrace specialization, but more and more companies are seeing the value in it. The best companies – the top companies – are building sales models tailored to different kinds of customers and different kinds of businesses. They are increasingly customer-centric. However, this is not an either/or prospect: You can take care of your customer and you can take care of your best salespeople. Your sales team needs to be invested in your success and see the value in efficiency.
The pay of your sales team needs to be based on the company's profitability. By building an internal emphasis on profitability, you motivate and reward your people and draw them together on a common set of values. If everyone in your company is invested in the success of your company, then everyone from the CEO on down to a stock clerk is looking for ways to drive profit.
For more information about Bruce Merrifield, visit: www.merrifieldact2.com
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