Sales Compensation and the Chef Visits Your Table
Editor's Note: Some of us in the reward profession struggle to get our heads around sales compensation, having never been in a sales role ourselves. In this Classic sales compensation post, Dan Walter helps us look at and consider the role of a sales person through a new and intriguing lens.
Sales compensation is an uncomfortable area for many compensation professionals. Many of us have never been professional sales people. Many of us don't have the technical modeling expertise to flesh out these plans. The plans don't operate the same way as most incentive plans. Sales people do not react to pay programs the same way as most other employees. Sales managers often are simply great sales people who have been put in charge of similar, but less great, sales people. Often we are tasked with supporting or communicating a plan when we have had little interaction during the fact finding and design phases. With all the being said, let’s talk about sales comp!
I recently spoke to a company that is really doing great. They are growing. Their clients love them. Their employees like working there. Even though they are doing well, they are still looking for new ways to grow better and faster.
The company basically has three types of sales.
Ongoing: These are clients who are pleased (often ecstatic) with the value they receive. They renew cycle after cycle. These clients are mainly handled by non-sales account managers. Their satisfaction level is so high that the company considers each to be almost a guaranteed ongoing relationship and, basically, an annuitized revenue flow.
Incremental: These are clients who are so pleased with the value delivered that they add on to their legacy business. Like ongoing clients, these are handled by non-sales account managers. Sales professionals are brought in only to close the incremental increase and provide contracts.
New: These are where most of the company’s growth currently derives. It is sales people’s jobs to educate and convince these companies to become clients. This is where the lion’s share of any increase in sales pay comes from.
The company wants to grow. It also knows most legacy clients will renew and some will add-on a bit of new business. The sales people are focused mainly on finding and closing new clients. That's where the money is. Incremental sales have historically happened simply because they happen. They account for a small percentage of total growth. It became clear that this was a lost opportunity.
I asked how often the sales team interacted with ongoing clients. I learned it happened rarely unless the client requested incremental new business. They explained that their clients loved what they delivered so much that there was little need to interact with them unless they were changing something. I simply asked if they had ever been to a truly great restaurant. They all said yes.
Truly great restaurants can often survive on the food, service and ambience. People tend come back because the great experience. New customers generally come because they read reviews or are dining with friends who have been there prior. This is much like the ongoing client experience. If you’re good, you will get return business. But what happens if you are GREAT?
I asked if any of the great dining experiences included the executive chef and/or owner visiting their table and if that experience changed their enthusiasm for the restaurant. Everyone agreed that the table visit was the most memorable part of that meal. Owners and executive chefs are motivated to interact with their customers. They know it’s what sets them apart. This company provided nearly no motivation for sales people to interact, so they simply didn't make much effort.
Our sales compensation solutions usually focus on the “close”. Sales people receive minimal incentive to inspire the old clients to new heights. Your best sales professionals know this and fill the gap. But your lower tiers of sales may need some help. Compensation plans can be a great way to communicate the importance of this. Provide rewards for your sales team beyond commissions for new business. In a competitive market incentives that motivate your sales people to check on people “while they eat” can make all the difference in growing your sales team and your revenue.
Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.