A company’s salary/bonus system will inevitably push sales in an easy to understand direction. Sales people in general run in the direction in which you place the carrot. Analyzing and really understanding your company’s bonus system is therefore critical. It will explain why your sales force focus on a certain type of customers, e.g. pursuing new customers while neglecting existing. In general,
sales towards new customers receive way too much attention compared to sales towards existing customers – contacting and selling towards new customers is often considered a little bit more “sexy”.
GENERATE A RAPID SHIFT IN THE SALES FORCE FOCUS by tweaking on 4 VALUE INDICATORS: - “New customer indicator” specifies how fast do you want to grow revenue. In the base case this indicator is 1. Here is an example. If a sales person have a budget of € 10.000 and brings in a contract with the value of € 3.000 then in the base case this contract is valued at 3.000 1 = € 3.000. If you need to boost focus on top line for a month then increase the value of every new customer by increasing this “New customer indicator”.
- “Existing contract indicator” specifies the focus you want your sales them to have on extension of existing customer contract. In the base case this indicator is 0.5. Here is an example. If a sales person have a budget of € 10.000 and brings in a contract with the value of € 3.000 then in the base case this contract is valued at 3.000 0.5 = € 1.500. The reason for valuing an extension to 0.5 is primarily because it is generally a lot less work.
- “Off-the-shelf indicator” specifies the value you put on only selling what is standard. In the base case this indicator is 1 but if you are struggling with a sales force that is to create increase this factor to 2 until you have learned the sales people to sell only what is on the shelves. . If a sales person have a budget of € 10.000 and brings in a contract with the value of € 3.000 then for a company struggling with to creative sales people you can value this contract to € 3.000 2 = € 6.000
- “Tailor made indicator” specifies the value you put on selling non-standard solutions. For many companies this is very bad for short-term profitability and long-term work load. In the base case the value of this factor is 0.5. If a sales person have a budget of € 10.000 and brings in a contract based on a non-standardized product / service the value of those € 3.000 is reduced to € 3.000 0.5 = € 6.000
This is a very non-academic and generic approach to fix your salary & bonus model on a short-term basis. For fundamental changes you need to go beyond this simple model. However, I used this approach with good success when responsible for the profitability and revenue for a business segment with more than € 200 million in yearly turnover.
Strongest benefits with this “Indicator-approach”- Uncomplicated to communicate
- Easy to remember and use for your sales force
- Time efficient to follow-up on for your accounting staff.
- Strongest benefit however is that you can implement this model on almost any existing bonus-program that exist today and achieve the desired shift in focus in your sales force.
The value of each indicator should depend on Your company’s
profitability on new vs. existing customers
Focus on
standard deals, based on sales of “of-the-shelves” products and it’s influence on your technical departments and customer service.
Revenue distribution between existing and new customers. If too much of your revenues come from existing customers then this might indicate a week revenue growth and a tired sales force.
Simplicity to follow-up and understand for auditor, sales people and yourself.
