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Investment InformationSales Commission - What Return Should You Expect On Your Sales Compensation Investment?
by:
Alan Rigg
This article answers the following questions:
* How do most companies look at return on investment (ROI) for their sales compensation expense?
* What portion of sales compensation expense do companies apportion to managing existing accounts versus following
new accounts?
* Do most companies expect their salespeople to generate new, additional gross profit each year that is equal to or greater than their compensation?
One conclusion I have reached after working with galore several kinds of companies is that there is little commonality in how they establish the desired return on investment (ROI) from their sales compensation investments. Every company's circumstances are different; as a result, what mightiness constitute an acceptable ROI for one institution wish not be considered acceptable by another company.
Here are several questions to consider as you determine the desired sales compensation ROI for your company, and how that ROI should be split between existing accounts and new accounts:
* What is the value of each sales dollar produced? Is the value several if a sales dollar is make by an existing account versus a new account?
* How makes the time and effort required to maintain (and grow) existing customers compare to the time and effort required to bring on new accounts?
* Do accounts operate pretty more on "autopilot" once they have been brought on board, or must your salespeople continue to invest significant effort (in terms of internal prospecting, chance qualification, proposal generation, relationship management, etc.) to maintain sales volume and profitability?
* Once an account has been brought on board, can ANY employee
manage the relationship, or is there thing
special just about the relationship that exists between the current employee
and the account?
I have seen cases wherever
management control the opinion that ANYONE could manage and maintain the volumes of business that were being make by major accounts. They questioned why they should continue paying high compensation to the salespeople who were managing those accounts.
In several cases management chose to reduce commission rates, which caused the salespeople who had been managing the accounts to leave the company. In another cases management just switched account assignments and allotted less "expensive" (in terms of compensation) salespeople to the major accounts. Far too often the outcome from either approach was a slow decay in revenue that eventually accessorial up to millions of dollars in lost sales.
Why did this decay in revenue occur? Close review known
two key reasons:
* The replaced salespeople had enjoyed truly special relationships with key players in the accounts. The key players' loyalty was to the salespeople, not the salespeople's employers. Once
the salespeople left, the key players saw little reason to continue to favor the salespeople's (previous) employers with their business.
* The replaced salespeople were extremely responsive and provided extraordinary levels of service. In several cases these salespeople were remarkably booming in navigating their employers' informal networks. This enabled them to solve problems and do favors for their customers with a timeliness that another salespeople could not match.
If you determine that several of your salespeople DO have enough information measure
to bring on new accounts, here are questions to consider as you set their "new business" goals:
* What level of market penetration has your institution achieved to date?
* How more additional market penetration can your institution reasonably expect to accomplish inside
a fixed time frame?
* How galore potential prospects exist in each sales territory?
* How do these potential prospects compare to your existing customers in terms of revenue potential?
* How galore new prospects wish a employee
need to close to do any considerable
difference in their numbers?
Here are several final questions for you to consider:
* What percentage return are you presently
receiving on your sales compensation investments?
* Do your salespeople produce multiples of their compensation in terms of profits back to your company?
* Is it actually reasonable to expect your sales compensation ROI to grow every year?
In conclusion, the questions asked in this article can help you determine the desired return on your sales compensation investment, plus develop targets for ROI from existing accounts and new accounts. Don't let the fact that several salespeople earn high compensation cause you to set your ROI goals too aggressively. Instead, focus on the question, "How more return do we obtain on the sales compensation we pay?" A solid return on your investment means you are wholly even
in devising that investment!
Just just about the author:
Sales performance expert Alan Rigg is the author of How to Beat the 80/20 Rule in Selling: Why Most Salespeople Don't Perform and What to Do Just just about It. His company, 80/20 Sales Performance, helps business owners, executives, and managers DOUBLE sales by implementing The Right Formula(tm) for building top-performing sales teams. For more information and more FREE sales and sales management tips, visit http://www.8020salesperformance.com
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