Controlling and compensating your salesmen.

Controlling and Compensating Your Salesmen

One of the most difficult problems managers face is adequately controlling sales personnel, and then rating them effectively so that sales compensation is closely related to both effort and results.

All too often we tend to under manage our sales staff, using an outcome-based approach--sales people are left to their own devices to achieve results in their own way, using their own strategies. Sales personnel are then held accountable for results, but not usually for how they are achieved. Under this system, the marketplace pressures people to produce. Foundries using outcome-based control methods reduce their management overhead, in effect, by letting sales take all the performance risk. Compensation usually involves a potentially large bonus, which may or may not be a strongly motivating force. With some this approach works fine. But what do you do if it doesn't? You go to what is a better alternative for some managers whose sales people don't seem to be self-motivated: a behavior-based control system.

Using this technique, the sales manager (assuming good marketing information) actively monitors and directs the efforts of the sales force. These managers typically have a well-defined idea of what they want their sales people to do, and work hard to make sure they do it. Compensation in this case is largely salary, with a modest performance bonus.

Thus, in behavior-based systems the foundry assumes the performance risk and gains maximum control. Evaluations and increases in compensation are predicated based on more complex, subjective assessments involving what sales people do, rather than on what they measurably achieve.

Flexibility Needed

If you strongly tend to follow either one of these sales management styles, you probably are making a mistake. Castings--even in the present excellent business climate--are not an easy sell. It is a demanding job, one in which success is hard to predict. And, contrary to popular belief, it is extremely difficult to profile the successful sales person and to define what makes one person more effective than another. It is precisely for this reason that you cannot adopt a single sales management and compensation strategy and expect to apply it equally to different sales personnel.

The most successful sales managers are highly flexible, and are very good at adapting various management techniques to individual sales people. Ultimately, the differences in attitudes, motivation and behavioral strategies will result in varying levels of sales performance. However, by tailoring sales management styles and compensation plans to the individual, your success rate will be much higher than if you follow a set of rigid guidelines.

If your sales people are compensated only by salary, it is just a question of time until you ask yourself, "Could I increase sales results with a good commission or bonus plan?" If you already have one, is it adequate to accomplish your sales objectives? If not, now is probably the time for revision. The primary objective of these plans is to increase profits by retaining your good people and making sure they produce to their potential.

Most sales personnel have accounts that they must spend a large amount of their time maintaining. And the compensation plan must accept this as the first priority of the sales effort. However, it is a fact that new work is the lifeblood of any foundry. Since attrition in existing business probably will be at least 10% a year, this work must be replaced if sales are to just stay even. Then, if the business is to grow, additional sales must be generated.

Developing Incentives

Since holding onto current business is vital, the compensation plan must be based on maintaining the present sales volume. Then you can begin to get innovative and put together a package to keep your sales force interested, motivated and financially satisfied. The plan you devise also must be economically practical from the company's standpoint. As a practical matter, any good plan will have to be tailored to each sales person to some extent, considering the demands of their accounts and potential within their territory for new business.

A simplistic way to do this is to look at last year's earnings in relation to volume and on this basis establish the individual's performance level. Unless they meet this target, they should not see a salary increase in the current year. If the mutually agreed-on sales forecast is up, say 10% over last year, then they should receive a bonus for achieving this forecast--a set percentage of the increase.

The philosophy here is much like profit-sharing, but unlike usual profit-sharing plans, this type of plan is directly geared to the individual sales person's efforts. With this approach, a sales person may increase their earnings dramatically, but this should not be cause for concern because profits will rise correspondingly. A compensation plan based on this concept can be a valuable tool for keeping and attracting good sales people.

It is to be expected that you will have problems with any compensation plan, so you must be flexible. Suppose a major account goes on strike. What if the economy goes sour? What happens when a sales person becomes ill? The answer to any of these situations is the same: adjust the expected performance level downward. If a windfall condition occurs, adjust it upward.

Finally, if you get locked into a bad sales compensation plan, don't hesitate to alter it. Most sales people will understand constructive changes and will be sympathetic about correcting a lopsided bonus arrangement.