Changing The Salesperson Compensation Plan
Question: How do you switch from paying your salespeople based on the sale to paying them based on the collection of the sale?
Answer: Any time you make changes to a salesperson’s compensation plan, you are playing with fire. Any adjustments require that you be sensitive to their plight, and thoughtful and methodical in your approach. It’s worth the time to do it right.
As always, the first step is to assess the impact of the proposed change on each individual sales person. This typically means that you’ll need to create a spreadsheet for each sales person and one for the consolidated group of salespeople.
Then, track the monthly income of each salesperson for the last six to 12 months. That establishes a base.
Now, project forward, realistically estimating the financial impact of the change on each salesperson and the resulting impact on the company’s costs. Look at what it’s going to cost each salesperson, one at a time. There may be a salesperson, for example, where every account pays within 30-day terms. The impact of the change on that person may be very limited. On the other hand, you may have a salesperson where every account pays over 30 days. In that case, the change will have a more pronounced impact.
Regardless, you now know with some precision what the change will cost each salesperson. Armed with that information, you now are faced with a decision: Should you help this person with the transition, or not?
Helping him with the transition means that you intervene by forwarding some financial assistance to the individual. One by one, answer this question: If this plan puts extra hardship on the salesperson, to the degree that he/she decided to leave your employment, is that OK with you? It is possible that your answer is “Yes, I’m OK with him/her leaving.” If that is the case, then don’t go any further.
This individual-by-individual analysis will lead you to a conclusion that one or more of your salespeople will be significantly impacted, to the degree that they may decide to leave your employment, and you don’t want that to happen.
Now, the question for that small group is “How can we help?” You may want to advance a temporary draw, to be paid back out of earnings later. Take our example from above – the $5,000 sales person. You decide to advance him $700 the first month, and $200 the second month, to help him over the hump. You decide to set up a repayment plan of $100 a month for months 5 through 14.
During the meeting in which you communicate the change, sit down one-on-one with each of the salespeople with whom you want to transition, and show them your transition plan for them.
While this approach will take some time, the paybacks will be worth it. You’ll gain respect from the salespeople for the time and attention you gave to this issue. You’ll dramatically reduce the negative fallout of a change in their compensation, and you’ll send a message to your good performers that you value them.
Dave Kahle is one of the distribution world’s leading sales authorities. He’s written ten books, presented in 47 states and ten countries, and has helped enrich tens of thousands of sales people and transform hundreds of sales organizations. Sign up for his free weekly Ezine. Check out our Sales Resource Center for 455 sales training programs for every sales person at every level.