Reorganizing salespeople's compensation plans to accomplish company goals and motivate employees.
In the beginning it made sense to pay your salespeople using a straight revenue-based quota system. After all, the goal was to sell, period. Now profits mean as much as or more than volume. Yet if you're like most CEOs, you still pay your salespeople the old way, on sales volume alone. (See "How Sales Goals Are Set," [Article link].)
Rick Rose, president of Dataflex, has devised a more balanced compensation plan that feeds corporate goals and enables him to more equitably rank the 13 salespeople at the Edison, N.J., company, which resells and maintains PCs and peripherals.
Borrowing from Big Blue, Rose created a balanced performance quota (BPQ). "In any sales force, you have multiple things going on -- maintaining old accounts, going after new business," Rose notes. "The BPQ lets people compete despite different responsibilities."
For example, for a new account rep at Dataflex: hitting the goal of landing x new accounts is worth 40% toward quota; hitting y gross profit margin (sales minus cost of goods sold, divided by sales) is worth 40%; and bringing in z in revenues, 20%. But for a territory rep (the next level up), the BPQ differs significantly: the gross-profit-margin goal is worth 50%, the revenue goal 25%, and the product-mix goal -- selling a range of company products and services -- is 25%.
"When we do our sales goals each year, we make the BPQ the minimum requirement," Rose says. Dataflex's commission structure (all salespeople work only on commission) is based on reaching 100% of the BPQ. Most make or exceed it, he reports. There's no cap. "The more they exceed their BPQ, the more they make." The payoffs of the BPQ are
* Increased profit margin. While other companies focus on revenues only, Rose pays strict attention to gross profit margin. As a result, in the past three years Dataflex's gross profit margin rose to 17.2% in 1991, from 15.4% in 1988. The emphasis on margin helps salespeople decide how to use their time.
* More profitable sales. To underline the importance of selling from the company's product mix -- namely services (maintenance, training, custom design work) -- for the territory sales rep, Rose gave product mix the same weight as revenues. While Dataflex sells lots of hardware, "services are where we really make our margins."
* Motivated sales force. In the past three years sales have increased fourfold, from $23 million in 1988, to $93 million in 1991. "The corporate goal was 20% to 25% growth," Rose marvels. "That means a lot of salespeople did two to three times what was asked of them." -- Susan Greco