How do you compensate and retain good salespeople in a climate of declining gross profits? Has anyone implemented an “out-of-the-norm” compensation plan in response to these trends?
– Jim MacGregor, Corporate Aftermarket Sales
Toyota Forklifts of Atlanta (Scottdale, GA)
Dave Griffith: We have gone to a percent of revenue and/or set dollars per truck plan in the world of ridiculous GP. We give them a choice of this or the traditional GP-structured plan. We clearly look at the value of population and the associated long-term revenue streams and have attached a value to having product placed in the market. We also are working very hard on value selling, additional products to add to the line, and a renewed focus on selling service and rental where the better GP exists. We have shifted dollar opportunity to the items that drive GP for the dealership. The balance continues to be a significant challenge. The good news is, it’s working for us.
Duncan Murphy: It seems that all sales compensation is out of the norm these days. We are tailoring more plans to individual needs. While incentives must be a part of any sales program, we are incorporating a larger percentage of salary to attract the caliber of person we desire. We also err on the side of keeping things simple. We measure activity but do not necessarily pay them for each little thing we measure. Salespeople can waste time trying to keep track of each dime they are owed, so the simplicity factor helps keep them focused on what they should be doing.
The same philosophy holds true for aftermarket. We focus their activity and compensation to force their effort in the direction we desire. For example, our aftermarket staff gets paid double for new business for a period of 24 months on a specific account to drive new revenue. Our lift truck salespeople have incentives for growth in full maintenance. Reexamine your territories and assigned accounts. Right-size them regularly and change customer responsibility to provide enough potential and to make sure an account is covered properly.
Chuck Frank: We have a sliding scale for commission based on gross profit margin. The higher the gross margin, the higher percentage of commission paid to the salesperson.
I am a strong believer that great salespeople are able to sell at higher margins if they have strong personal and professional relationships with our clients. Our corporate philosophy is to exceed client expectations, go the extra mile, think out of the box, do the unexpected. If we perform at these levels, our clients get a flavor for the differences between us and the 10 other competitors in our market. This allows us to discuss margins openly with our clients so we do not have to be the low price supplier to earn their business. We expect our salespeople to deliver this message on behalf of our team. By involving the sales team and holding them accountable, they have a better appreciation for the importance of selling at higher margins versus increased volumes.
Rex Mecham: The need for creative compensation plans is the result of a fatal philosophy. I understand the pressure to increase market share, and I hear the argument of developing a demand for parts and service. But market share doesn’t pay the rent or salaries, and there is no guarantee that the owners of lift trucks that we give away (or pay customers to take) will use us for their future parts and service needs. We as managers must change our mindset. If we focus only on price to move iron, how can we expect salespeople to have anything to sell other than price? We need to be professional and develop professional salespeople who are paid based on the profit they generate. Salespeople should be solving the problems of users of materials handling equipment and sell the value of the solution at a profit. “At a profit” is the key phrase! The idea that we can have a department that loses money and expect to survive or have the resources to take care of customers is fatal. It just will not work, and we are beginning to suffer from this painful reality. Consider how much time you spend thinking about the selling price versus thinking about the value you provide your customers. If we are not willing to train and develop professional salespeople and pay them for selling value at a profit, then we only have order takers and they should only be paid an hourly wage. None of us wants this. But if we don’t change our mindset, this and worse will eventually happen.
Ron Rechenbach: It is not easy to develop a comprehensive compensation plan that satisfies all people, but it is possible. I feel that gross profit percentages are directly related to the perceived value of your clients in the solutions that you can provide. If you drill down on having your salespeople stress value to their clients, then gross profit margins are maintained and everyone is happy. You will need to constantly reinforce the value perception to your salespeople.
Jerry Weidmann: Our compensation program is based on a salary plus commissions/incentives. Our commissions are based on a percent of gross profit with a minimum commission in the event that the percent of gross profit falls below a predetermined level. The commission earnings potential of a salesperson is based on the territory to which they are assigned, the product mix of their sales (new, used and general lines), and the degree of competitiveness in the market.
We increased the percent of gross profit that we pay. We increased the minimum commission on new equipment to increase the compensation on low-margin transactions. We provide a higher minimum commission on new equipment sales to new customers to encourage the expansion of our customer base. Where appropriate, we increased the base salary within territories to make up for the general decline in gross margins on new equipment sales.
We seek to improve the earnings potential of our sales staff by having a good inventory of high-quality used equipment. Margins on used trucks have not suffered the same compression as those on new equipment. We train and assist in allied lines sales. We pay a percentage of gross profit on allied lines sales. We have not experienced the margin compression on allied lines sales that we have in new equipment.