Converting a customer from purchase orders to a long-term contract takes a lot of your sales force's time, and it's more stressful to sell to the client's management than to employees who authorize single orders. Plus, the excitement of landing a new contract often fades when salespeople have to wait months for commissions to kick in. "I could never figure out why my salespeople never smiled when they got their commission checks," confesses Steve Braccini, former president and CEO of Pro Fasteners, an Austin, Tex., seller of industrial hardware and inventory control services.
Instead of making salespeople wait until revenues rolled in, Braccini paid a fat commission check up front when a customer switched to a contract. Within a week or so, the salesperson received a check amounting to six months' commissions on the contract. To estimate the contract's worth, Braccini and the sales rep would consider the customer's previous six months of purchases and projections for the next six. If a one-year contract was valued at $50,000, the rep got $1,250, or half of the 5% commissions he or she would collect later.
The check was like a signing bonus, "a reward for converting the account," says Braccini. "There was instant gratification." On top of base pay and commissions on purchase orders, salespeople netted, on average, an extra $2,500 per month in bonuses. The pay-policy change boosted Pro Fasteners' efforts to convert customers to contracts. When Braccini sold the company at the end of 1996, about 65% of his business was done that way.