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Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals 
Achieving Growth and 
Profitability t...
Sponsor
Learning Objectives 
After attending this event you will be able to: 
• Understand the types of profit measures that shoul...
Proformative Event Notes 
• Links to today's presentation and the recording of this webinar will be sent out to 
all atten...
Welcome to Proformative 
Proformative is the leading educational resource for 
corporate finance professionals. 
A resourc...
Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals 
Achieving Growth and Profitability th...
Your Presenters 
CF’s Business 
Focus 
 Help our clients increase sales force performance through effective use of sales ...
Challenge Faced by CSOs 
One Company’s Experience 
 “It’s become clear that we need to revisit the 
traditional measures ...
Three Common Business Goals 
Associated with Profitable Selling 
Profitable revenue growth requires a sales force to… 
Red...
Four Factors That Impact Profitable 
Selling 
10
Aligning Business Goals with the 
Compensation Plan 
Beliefs proven and held by management… 
 We know what constitutes pr...
Business Profitability Goals and Measures: 
Evaluating the Opportunities 
Key Analyses Description 
Product line financial...
Business Profitability Goals and Measures: 
What are the Alternatives 
Goal Performance Metrics 
Grow revenue 
profitably ...
Incentive Designs that Support Profitable Selling 
Overview 
 Behavioral change 
 Action plan for change; willingness to...
Change in Selling Behaviors Potentially 
Associated with Sales Profitability Incentives 
Variable Pre-Incentive Post-Incen...
Action Plan for Change 
Element Description 
1) Profitability 
definition & jobs 
responsibility 
 Confirm where (level) ...
Action Plan for Change (Continued) 
Element Description 
3) Timeline 
 Identify “gaps” (between what is available vs. nee...
Most Common Sales Profitability Design 
Techniques 
 Bonus (as one component of the sales comp plan) 
 Multiplier (+/-) ...
Common Sales Margin Incentive 
Techniques – Details 
Incentive Technique How it Works 
 “Standalone” incentive  “Carve o...
Incentive Designs: Margin Improvement 
Leading Computer Peripherals Company 
Factor Description 
Business goal(s)  Achiev...
Incentive Designs: Reduce Discounts 
Global Medical Products Company 
Factor Description 
Business goal(s)  Grow revenue ...
Including Sales Profitability in Your 
Company’s Plans – How to Decide 
Function Issues to Consider 
Finance Can show the ...
Summing Up 
 Complex sales transactions often offer the greatest opportunity to 
improve sales profitability 
 Improveme...
Thank You
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Compensating the sales force for profitable selling

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Presentation to corporate finance executives on how to help Sales better align compensation plans to a profitable revenue growth strategy.

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Compensating the sales force for profitable selling

  1. 1. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals Achieving Growth and Profitability through Better Compensation Planning
  2. 2. Sponsor
  3. 3. Learning Objectives After attending this event you will be able to: • Understand the types of profit measures that should be considered and adopted in reference to the three common business goals associated with improvement in profitability • See examples of the architecture of effective, profit-oriented incentive designs relative to three common business goals for jobs that typically are measured this way • Learn about key decision criteria that are associated with profitability to determine if implementing these changes would be right for your company 3
  4. 4. Proformative Event Notes • Links to today's presentation and the recording of this webinar will be sent out to all attendees within 24 hours of the event and the presentation is already posted on www.proformative.com/resources for free download. • Those who would like CPE credits (through NASBA) will need to answer all polling questions during the event and should have pre-registered for CPE credit. For any questions on CPE credits, please send an email to cpe@proformative.com. • Please ask questions on today's topic via the "Questions" box in your GoToWebinar control panel at any time during the event. We will do our best get to your questions during the Q&A/panel discussion at the end of the event. If we do not get to your question, a speaker or webinar sponsor will follow up with you directly to address your question. • You will be asked to take a short survey today regarding the webinar, and we would greatly appreciate your feedback regarding our event today as we always strive to improve the ROI we offer our event attendees for their valuable time. 4
  5. 5. Welcome to Proformative Proformative is the leading educational resource for corporate finance professionals. A resource where corporate finance and related professionals advance in their careers through: • Uniquely valuable, online peer network • On demand courses taught by peers and SMEs • Valuable Features and Resources Check it out at www.proformative.com 5
  6. 6. Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals Achieving Growth and Profitability through Better Compensation Planning Jerome A. Colletti, Managing Partner, Colletti-Fiss Mary S. Fiss, Co-founder & Partner, Colletti-Fiss
  7. 7. Your Presenters CF’s Business Focus  Help our clients increase sales force performance through effective use of sales compensation plans  Clients include many Fortune 500 companies and/or their divisions Jerry Colletti  Managing Partner and Co-Founder  Advisor to global sales leaders in select industries  Designer of plans in over 20 industries affecting over one million sales people and their managers  Teacher/speaker – Columbia U. Exec Ed., Ohio University College of Business, Conference Board, Selling Power, and WorldatWork,  Author – four books, 100+ articles including HBR, Selling Power and leading professional journals Mary Fiss  Partner and Co-Founder  Designer of plans in technology, software, medical products, biotech/life science, pharmaceuticals, business services and capital equipment industries  Frequent speaker at WorldatWork  Leading expert in sales compensation plan Terms & Conditions  Author – four books; 60 articles 7
  8. 8. Challenge Faced by CSOs One Company’s Experience  “It’s become clear that we need to revisit the traditional measures of success in our business.  We’re seeing margin erosion in certain parts of the business. If we continue to focus solely on orders, market share and revenue to define our performance, further erosion in business results will follow.  Selling value is the only way we will free ourselves from traditional price wars and defeat our purpose of developing trusted advisor relationships.  We need to move forward with methods, measures and systems to reward profitable selling.” 8
  9. 9. Three Common Business Goals Associated with Profitable Selling Profitable revenue growth requires a sales force to… Reduce discounting Retain YOY revenue > 92% Improve margins 9
  10. 10. Four Factors That Impact Profitable Selling 10
  11. 11. Aligning Business Goals with the Compensation Plan Beliefs proven and held by management…  We know what constitutes profitable business and we can direct sales people to that end  Value-added, solution oriented selling yields a higher ASP than selling “me-to” products  All sales are not “value added” solutions; sales people must sell differently to “economic buyers” and “strategic buyers”  Sales people are in the best position to demonstrate and negotiate value; investments in resources and tools are essential to their sales success 11
  12. 12. Business Profitability Goals and Measures: Evaluating the Opportunities Key Analyses Description Product line financial analysis 1) Are there significant differences in the gross margins of the products or product lines that the sales force sells? 2) Can the differences be measured and tracked? Sales process analysis If discounts, allowances or other types of pricing concessions are delegated down into the sales organization, are proper controls in place to monitor concessions? Customer analysis Who are profitable customers and, how are they characterized? Sales territory analysis 1) Which territories are the most profitable? 2) How do sales reps in high profit territories produce these results? 3) What profit oriented sales techniques are easily transferrable? 12
  13. 13. Business Profitability Goals and Measures: What are the Alternatives Goal Performance Metrics Grow revenue profitably  Overall revenue retention achievement  Performance vs. contract terms  Overall margin compared to comparable customer set Improve margins (customers, contracts)  Margin performance compared to goal  Value add-ons such as solution sales vs. a single product sale  Percent of discounted deals with full price service, shipping Reduce discounts  Percentage of deals sold with 100% contract terms compliance (e.g., shipping or other delivery related terms)  Price realization (discount off list or ASP)  Margin ($s or percentage) on sales 13
  14. 14. Incentive Designs that Support Profitable Selling Overview  Behavioral change  Action plan for change; willingness to commit to it and, “stay the course”  Illustrative design frameworks, i.e. templates to guide design thinking and discussion 14
  15. 15. Change in Selling Behaviors Potentially Associated with Sales Profitability Incentives Variable Pre-Incentive Post-Incentive Who (customers) is called on  Undifferentiated  Sort, prioritize and discriminate in favor of “value oriented” buyers What products/ solutions are presented  Easiest to sell…least customer/buyer resistance  Bias toward products and solutions that are a “good fit” but also skewed to higher return to the salesperson What message is delivered  Product or “thing” centric  Solution or value oriented centric 15
  16. 16. Action Plan for Change Element Description 1) Profitability definition & jobs responsibility  Confirm where (level) and with whom (job) responsibility lies for sales profitability  Confirm how sales profitability is defined and measured  Identify inconsistencies in performance measures 2) Resources & tools  Clarify and confirm processes, programs, tools and systems available and used to execute profitable selling: – What is available today and how used – What is in process or being tested – What is missing/needed; what investments are required to close gap 16
  17. 17. Action Plan for Change (Continued) Element Description 3) Timeline  Identify “gaps” (between what is available vs. needed),  Confirm the resources and/or tools that will require work (investment, resources) throughout change period 4) Outcomes  Identify cultural, management, and systems indicators that support shift from current measures to measuring sales profitability  Define indicators of Action Plan success, i.e., what outcomes or milestones must be achieved to demonstrate progress toward “end-game” 17
  18. 18. Most Common Sales Profitability Design Techniques  Bonus (as one component of the sales comp plan)  Multiplier (+/-)  Gate or hurdle to gain entry to payout under other plan components 18
  19. 19. Common Sales Margin Incentive Techniques – Details Incentive Technique How it Works  “Standalone” incentive  “Carve out” of target incentive  Defined margin goal (and, performance range)  Typically, rate per point bonus plan; OA opportunity is common  “Gate” or “hurdle” that must be achieved to realize incentive payment on another measure  Primary metric, e.g., volume, is basis for determining incentive  Margin $ or percent is “hurdle”, e.g., if total margin on sales is < x%, no incentive is earned  Payout multipliers (+/-) applied to incentive earned on a primary performance measure  Bonus earned on primary metric is +/- based on margin performance, e.g., margin > z% results in +15% up-tick 19
  20. 20. Incentive Designs: Margin Improvement Leading Computer Peripherals Company Factor Description Business goal(s)  Achieve assigned revenue goals with key accounts  Manage promotional and program costs to goal  Implement new product launch sales programs Metrics  Sales revenue to goal  Gross to net (sales) percent improvement Incentive design (key concepts) – Account Executive position  Defined target incentive comp opportunity  65% of target incentive tied to sales revenue performance  35% of target incentive tied to gross to net percentage improvement  Plan components “unlinked”  Rate per point (bonus) design used in payment calculation 20
  21. 21. Incentive Designs: Reduce Discounts Global Medical Products Company Factor Description Business goal(s)  Grow revenue through increased share of equipment in force  Reduce/contain discounts on new (equipment) sales Metrics  Total revenue vs. quota  Percentage dollar improvement (relative to baseline period) in equipment sales discount Incentive design (key concepts)  Sales Specialists  Region Sales Manager  Defined target incentive for each job  70% of incentive tied to revenue to goal performance  30% of incentive tied to reduction in average discount performance, i.e., payout if x% of the $s of list value of equipment sold in the period at the lower discount 21
  22. 22. Including Sales Profitability in Your Company’s Plans – How to Decide Function Issues to Consider Finance Can show the business: 1) Which product lines, customers, and channels are unprofitable 2) Which of those areas are the most profitable Sales Is committed to: 1) Sales model and processes that focus on selling profitable business 2) Providing the tools and programs to front line sellers and managers to execute on profitable selling IT Is engaged with Finance and Sales to: 1) Gain/sustain C-level support for investments in sales technologies and software 2) Provide dedicated IT resources to provide performance dashboard and analytical tools to help sales leaders coach for profitable sales results 22
  23. 23. Summing Up  Complex sales transactions often offer the greatest opportunity to improve sales profitability  Improvement in sales profitability is best accomplished through an enterprise-wide commitment involving Finance, Sales, IT and Human Resources  Ultimately, improvement in sales profitability requires a willingness to change processes and a commitment to makes investments  Finally, patience in required from all involved – most improvement initiatives of this type take one to two full years to realize the desired benefits and returns 23
  24. 24. Thank You

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