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Author: Rick Johnson Article source: http://www.ircg.com/. Used with author's permission.
This article takes the Tier Level Selling (T.L.S.) program to the next level by introducing sales force incentives to maximize the program's results. The T.L.S. program is detailed in Part I. It focuses on segmenting and targeting customers based on growth opportunity. This puts the right focus on your "plus" accounts by pointing you to the five largest accounts with the most growth potential without ignoring the five best medium sized accounts, and five revolving target accounts for new business.
Incorporating a Tier Level Selling program without reviewing the way sales representatives are paid may lead to improved results, but these results will likely fall short of expectations. As all of us know, sales representatives are very good at following the money (most have adopted the motto from Jerry Maguire, "Show me the Money"), and if being successful at the T.L.S. program shows them more money, their hearts and minds will follow. Three different possibilities for applying compensation incentives to the T.L.S. program are described below.
The Easy Way---SPIF
The easiest way to incorporate T.L.S. into an existing sales compensation program is through the use of a Special Performance Incentive Formula, or "SPIF." One option is paying lump sums for certain levels of revenue growth generated from each of the three tiers of accounts. Another more interesting idea is to create a "bonus" pool and pay 50% of the pool to the sales rep that generates the greatest amount of gross profit from his or her T.L.S. accounts. Pay second place 30%, third place 15%, and fourth place 5%. The objective when structuring the pool payouts is that 50% of the reps would earn some award and that the difference between first, second and third place is significant. This really plays on the competitive spirit that most sales reps have. The bonus payouts generally are paid in addition to the normal commission earned on this revenue, but only for growth. There are many options in designing SPIF's and creativity is encouraged.
Tier Level Incentive
Another option for those of you that pay your sales reps primarily through sales commissions is the use of a tiered commission program. With this program, sales to T.L.S. accounts are paid at a higher rate than Non-T.L.S. accounts. As a warning, this option requires some homework. Either a strategic decision is made that your company is willing to increase its sales expenses as a percent of GP for sales to these accounts, or the existing commission rate must be lowered to offset the higher T.L.S. rate. If the latter option is chosen, refer back to your high school textbooks and refresh your memory and binomial equations. You can also play Robin Hood in reverse, taking from the weak and giving to the strong. T.L.S. identifies your strong accounts based on unrealized potential.
Weighted Factor Bonus
If your existing sales compensation program is fundamentally a salary plus bonus type of program, appending the existing bonus structure to incorporate revenue from the three tiers is an easy solution. Over the years, I have become quite fond of a sales compensation program we call the "Weighted Factor Bonus Program." This program is structured to pay sales representatives (or any employee for that matter) a percent of his or her salary for obtaining pre-defined goals. These goals can be revenue based, customer based, product based, or anything that can be measured. The real neat part of this program, though, is that all the goals are measured collectively, meaning a rep cannot get paid handsomely if he does well on two goals yet fails miserably on the third. Satisfactory or above average performance must be realized in all categories for any type of significant bonus to be earned.
Generally, these programs are structured with the expectation that between fifty to seventy-five percent of a sales representative's total income will be derived from salary with the remainder to be earned through incentives (bonus). Dr. Eric "Rick" Johnson (rick@ceostrategist.com) is the founder of CEO Strategist LLC. an experienced based firm specializing in Distribution. CEO Strategist LLC. works in an advisory capacity with distributor executives in board representation, executive coaching, team coaching and education and training to make the changes necessary to create or maintain competitive advantage. You can contact them by calling 352-750-0868, or visit http://www.ceostrategist.com for more information.
Rick received an MBA from Keller Graduate School in Chicago, Illinois and a Bachelor's degree in Operations Management from Capital University, Columbus Ohio. Rick recently completed his dissertation on Strategic Leadership and received his Ph.D. He's also a published book author with four titles to his credit: "The Toolkit for Improved Business Performance in Wholesale Distribution," the NWFA & NAFCD "Roadmap", Lone Wolf-Lead Wolf—The Evolution of Sales" and a fiction novel about teenagers called "Shattered Innocence."
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