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Recruit2Hire Tidbits
http://www.recruit2hire.com/newsletter/recruit2hire-tidbits.html
Volume IV, Issue 9/10 January/February 2003
Free monthly newsletter -
Keeps you updated on the most advanced strategies for
recruiting, hiring, and employee retention.
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IN THIS ISSUE
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Welcome from the Publisher
***QUOTE OF THE MONTH***
How To Develop A Sales Compensation Plan
The News Digest
This Month's Web Site Pick
Classified Ads
**Resources**
Subscription Management
Contact Information
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Welcome from the Publisher
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Welcome to this month's issue of Recruit2Hire TidBits!
Do you think you're saving money by hiring a sales person
to work on a commission-only compensation plan? Think
again! You may be shooting yourself in the foot. This
month's article from Ken Thoreson will help you calculate
the cost of sales at your company.
FACTOID: Jobs with a listed compensation range
receive almost twice as many clicks as jobs without
a listed compensation range.
Some of you have told me your company won't
use recruiters, but you need a way to speed up
your hiring process with the personnel you have
on board. I'm pleased to bring you two new services
that will do just that - and make your job easier in
the process! Check out these new services at
http://www.recruit2hire.com/resume-sourcing.html
and
http://www.recruit2hire.com/resume-database.html
I found some really great books for you this month -
be sure and check out the Resources below.
Enjoy!
Terri
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QUOTE OF THE MONTH
This is a test. It is only a test. Had it been an actual
job, you would have received raises, promotions, and
other signs of appreciation.
~Anonymous~
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How To Develop A Sales Compensation Plan
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by KEN THORESON
When it comes to paying sales people, there is no
one-size-fits-all costume. Some companies pay commission
based on sales while others blend in stock options,
incentives and special bonus plans. The options abound,
yet one common thread runs through all successful sales
compensation plans: truly understanding the goals of the
company. That’s because a sales compensation plan can have
tremendous impact on achieving not only sales goals but
also the overall goals of the corporation.
Sizing It Up
Sales managers must consider many variables when tailoring
a compensation plan including new product introductions,
emphasis on a particular product, personnel recruitment
and customer service. Compensation plans must take into
consideration the overall industry and the company’s
position. Are your sales goals orders- or bookings-based?
Do you have long delivery cycles? Are you a start-up? Are
your objectives to secure new clients, increase average
order size, to reduce selling expenses? Do you want to
open new lines, focus on the most profitable products or
increase certain activities such as cold calling? The
best methods of compensation depend on your answers.
In addition, your sales leader also needs to closely
consider the sales team. Do you need to attract new sales
people with characteristics that differ from the
existing team? Do you want to retain sales people to
build a long-term client-based sales organization or
is turnover acceptable? Holding down sales compensation
may be a fast way to reduce selling costs and enhance
profits, but in the long run, you get what you pay for.
If you offer low levels of compensation, you may attract
poor performing sales people. Similarly, if you hire good
salespeople but compensate them poorly, turnover is high.
Understanding Cost of Sales
Calculating the cost of sales (COS) is an important part
of planning a compensation package. For a quick COS ratio,
simply take the salary plus commissions earned and
potential bonus opportunities; divide by the revenue
associated with that person. A more sophisticated approach
adds in marketing expenses, corporate overhead, direct
expenses paid to the salesperson and expenses related to
sales support costs.
You must understand COS as it relates to your profit
margin. Determining the COS that your company finds
acceptable can help fine-tune your commission plan. Use
your financial officer to nail down elusive numbers and
to confirm that the plan meet the financial objectives
of the organization.
Examining the Styles
Compensation plans can be based on regular periodic
results and most include several measurements of revenue
and profitability. All compensation plans should include
"accelerators" such as increased commission rate when
sales people achieve target levels. Here are a few
examples.
Imagine these in your sales department:
Profit-Based Plans—Commission rates change as profit
levels increase. These may be based on invoice,
product or monthly averages.
Revenue Quota or Unit Placements Plans—Compensation
is based on sheer volume achieved over the previous
sales period or on a percentage of a quota achieved.
Break Point Plans—Break points, or target levels, are
based on attaining specified levels of production.
Balanced Plans—These include compensation for profit,
revenue and account growth.
Customer Service and Customer Satisfaction—These plans
are based on improvement as shown in customer surveys
and account growth.
Third Party or Distribution Supported Sales
Compensation—Most of these plans include a base salary
with limited commission geared to revenue growth over
previous periods.
Choosing the Best Match
With these compensation options in mind, let’s look at
some scenarios to see what type of plan works best.
If your company has high revenue growth objectives in
a boom market with little competition, use Break Point
plans or programs with higher base salaries and lower
commission plans. An advantage is that strong sales
skill may not be required.
If your company has a "protect and grow" revenue
objective, slower growth and many competitors, use a
profit-based plan and gear compensation to account
growth with bonuses for new accounts.
If your company’s goal is to maintain revenue and a
focus on new account conversion programs, use a
program focused on the percentage of growth or
quota-based compensation. This scenario requires
strong sales compensation with quarterly bonus
emphasis on revenue gains from new business.
Remember that compensation includes not just salary
or commission, but the overall package of benefits.
A good package may include profit sharing, stock
options, vacation, insurance and other company-
sponsored plans.
Tailoring Tips
With your goals and options in mind, here are some
final points to consider when customizing your plan:
1. In new organizations where expanding within
existing markets is the goal, your compensation plan
will be dramatically different from that of a mature
organization in the same industry.
2. New organizations in new markets need
compensation plans that reflect the volatile
environment, usually with higher-than-average base pay.
3. A new company or a company in some form of
transition or turnaround will experience a higher
COS ratio. You may also need morale-building,
team-building and open communication.
4. Organizations in transition or positioned for
high growth should develop programs based upon a
six-month period. This time length allows management
to test theories, make adjustments and still protect
the company. This also protects the salesperson from
unrealistic programs that limit their income
opportunity.
5. Don't ask salespeople to do too many things at
once. Most compensation and incentive plans link
rewards to only two or three aspects of job
performance. They should be linked to the firm’s
highest-priority sales and marketing objectives.
6. Get input from your sales team prior to the
roll-out of the new plan. This will ensure their
buy-in and raise questions and concerns.
Taking time to create an effective plan that
fits properly pays off in earned commission dollars
and achieved corporate goals.
-- END --
KEN THORESON is managing director of the Acumen
Management Group, Ltd. a Twin Cities consulting
organization focused on improving sales management
functions within growing and transitional organizations.
For more information call (9522) 944-7438 or
e-mail ken@acumenmgmt.com.
© Copyright 2003, Ken Thoreson
Feedback: terri@recruit2hire.com
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News Digest
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Human resources news
Job figures tipped to be bad news
The federal government is bracing itself for a dose of unhelpful
economic news with the release of new job figures.
Economists are tipping a fall of up to 35,000 jobs, although the
6.2 per cent unemployment rate itself may fall because of
changes in the participation rate.
The participation rate hit a record high last month, but it
should fall in the January figures to more manageable level.
The jobs sector continues to be the hardest to pick, with an
official measure of future employment falling for the fourth
time in a row, suggesting a slowdown in jobs growth in the
middle of the year. The Department of Employment and
Workplace Relations' Leading Indicator of Employment for
February fell to -0.162 from an adjusted -0.028 in January.
Feedback: terri@recruit2hire.com
Want more?
News feeds automatically updated daily for your website at
moreover.com FREE
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***Humor***
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Corporate lesson 1
A man is getting into the shower just as his wife
is finishing up her shower when the doorbell rings. After
a few seconds of arguing over which one should go and
answer the doorbell, the wife gives up, quickly wraps
herself up in a towel and runs downstairs. When she
opens the door, there stands Bob, the next door neighbor.
Before she says a word, Bob says," I'll give you 800
dollars to drop that towel that you have on." After thinking
for a moment, the woman drops her towel and stands naked
in front of Bob. After a few seconds, Bob hands her 800
dollars and leaves. Confused, but excited about her good
fortune, the woman wraps back up in the towel and goes
back upstairs. When she gets back to the bathroom, her
husband asks from the shower, "Who was that?" "It was
Bob the next door neighbor," she replies. "Great," the
husband says, "did he say anything about the 800 dollars
he owes me?"
Moral of the story: if you share critical information
pertaining to credit and risk in time with your
stakeholders, you may be in a position to prevent
avoidable exposure.
Corporate Lesson 4
A sales rep, an administration clerk and the manager are
walking to lunch when they find an antique oil lamp. They
rub it and a Genie comes out in a puff of smoke The Genie
says, "I usually only grant three wishes, so I'll give
each of you just one." "Me first! Me first!" says the
admin clerk. "I want to be in the Bahamas, driving a
speedboat, without a care in the world." Poof! She's
gone. In astonishment, "Me next! Me next!" says the
sales rep. "I want to be in Hawaii, relaxing on the
beach with my personal masseuse, an endless supply
of pina coladas and the love of my life. " Poof! He's
gone. "OK, you're up," the Genie says to the manager.
The manager says, "I want those two back in the office
after lunch."
Moral of story: Always let your boss have the first say!
Seen in Recruiters Network Discussion list
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This Month's Web Site Pick
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Exceptional Sales Performance
Connie Kadansky inspires people to overcome the self-generated
limitations that hold their careers hostage. She uses tools and
techniques developed by behavioral scientists and have been
time-tested and proven to overcome Call Reluctance. She assists
people in developing repetitive behavior patterns to achieve
measurable, bottom-line results.
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Classified Ads
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please visit 1dayresume
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Contact Information
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Terri Robinson, President Robinson & Associates
Connecting You with the Right Sales Pro for Your Sales Job
http://www.recruit2hire.com/ Telephone: (602) 233-8410
Phoenix, AZ E-mail: mailto:terri-robinson@recruit2hire.com
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