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CompensationMaster Newsletter Article, May 2002 When we talk to business executives from companies both large
and small, one recurring theme is the desire to recapture the profitability
their businesses used to have. Yes, the economy has been difficult, but for
many firms profitability problems go back before that.
One major reason for the loss of profitability, particularly in
commission-driven industries, is that firms are not properly managing their key
business relationship—with their sales associates. For many companies, this
relationship represents their single largest expense. When compensation,
benefits, and all goods and services provided to the sales force are included,
it can add up to 80% of the cost of running the business. If that relationship
is managed properly, the effect on the bottom line can be significant.
Start by looking at the relationship from a different
perspective—what value are you giving sales associates in exchange for
affiliating themselves with your company? What basket of goods and services do
you provide?
Those goods and services include traditional benefits, such as
health insurance and dental care, but also extend to training, administrative
support, and the amount of lead generation you do.
You need to start listening to your sales associates the way
you listen to your customers. They may value some of these benefits highly but
be very willing to dispense with others. There may also be benefits with a high
perceived value that would cost very little to add.
If you combine this knowledge of what your sales
representatives really want with corporate financial analysis, you can provide
a stronger value proposition to your sales force while enhancing corporate
profitability.
Another major reason for decreasing profitability is something
we call the technology sinkhole. We have seen this problem in virtually every
business we have worked with in the past eighteen months.
Companies invest in technology, see significant revenue growth
as result, and then start losing money—inexplicably—a year or two later.
What happens is that the productivity gains from technology push sales
associates up to higher commission levels. At those higher levels, the company
dollar is lower. So there is now less money available to pay for an ongoing
investment in technology.
Even worse, in many companies, the productivity gains are not
distributed evenly. Often the top producers reap the greatest benefit—and
those are the people who receive the highest commissions. This makes the
situation even worse. The solution is to re-design compensation plans based on
your current costs of doing business, so you can make sure you recover all of
your expenses - and build the profitability you need back into your business.
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