Sales Manager Q & A: Should you penalize sales people?

By Dave Kahle

Question:

Our president recently suggested that we penalize the sales people for not meeting their goals by taking commissions away from them. Do you have any thoughts?

Answer:

Wow.  My initial reaction is that it sounds so harsh.  Put that way, and you are liable to lose 90 percent of your sales force, just on the principle of it.

But, let’s spend some time thinking about this, as it is more complex than it appears.

If you mean that you want to take back money that you have already paid, I can’t imagine that you could, or would do that.  So, for example, you paid a sales person $20,000 in commissions during the year, along with a salary, and now, at the end of the year, you are saying that you are penalizing him for not making goals, and “Please give us $2,000 back?”

My guess is that is illegal.  I certainly do not recommend it.  As the employer, you are expected to take some risks with every employee.  The $20,000 that you paid the sales person was paid.  It’s his, not yours.

So, that’s probably not what you meant.  Maybe this is the scenario:  You have set up a salary and commission program.  Let’s say the commissions are four percent of sales, paid on every dollar of sales.  The sales person has a goal to do $500,000 in sales.  He actually does $400,000.  The next year, you reduce his commission rate to three percent of sales, thus “penalizing” him for not meeting his goals.

I have less of a problem with that, but I’d like for you to build in some incentives, as well.  How about something like this:  A three percent commission rate on all sales up to $400,000.  A three and a half percent commission rate on all sales between $400,000 and $500,000.  A five percent commission rate on all sales over and above $500,000?

That protects your risk, but also gives the sales person an incentive.

In general, I believe it is your responsibility, as the employer, to assume the risk of a sales person that under-performs.  Rather than attempt to take money away from him, I’d rather see you work with him to help him become successful.

Often the reasons for an underperforming sales person belong to others as well as the sales person.  Generally, there are things that you could have, and should have, done to encourage his/her success that you may not have.  For example, did you train that person in the fundamental competencies of field sales?  Has he been schooled in time management, and in making effective decisions about the investment of his sales time? Or have you expected that he’ll pull these sophisticated practices out of thin air?

Have you taught him how to create relationships and rapport with everyone?  Or, have you expected that he’ll just gain those sophisticated skills by osmosis?

Have you instructed him in the intricacies of asking effective questions, listening constructively and methodically uncovering the customer’s deeper issues?  Or have just assumed that he will magically acquire these essential skills?

Have you taught him the finer points of closing sales, handling objections and resolving customer’s concerns?  Have you showed him how to make a persuasive presentation and craft a powerful proposal?

You see where I’m going with this.  You cannot expect someone to do something if you have not shown him how to do it. Ninety-five percent of the field sales people in the world have never been shown the best practices of their profession.  Under those circumstances, isn’t it arrogant to penalize the sales person for not doing what you have not trained him to do?

So, first, look at yourself and rectify the contributions you have made to his lack of success. Then, if he cannot meet your expectations, terminate him from that position, and search for someone more suitable.

Once you set up a compensation plan, you are, I believe, obligated to meet the terms of that plan.  That doesn’t mean that you can’t change the plan.  But it does mean that you can’t decide, after the fact, to reinterpret the plan.  If your plan is flawed, then change the plan for all future work, but pay for work up to today according to the plan that you set up.

There is one place where I think it is legitimate to reduce or deduct something for the sales person’s commission.  That is in the case of a sale wherein the commissions are paid, and then the invoice is not paid by the customer.  In that case, I think it is perfectly appropriate to reduce the sales person’s commissions by the amount that you have already paid him for the sale that, in reality, didn’t happen.  That’s different than charging him some of the costs for the inventory that was shipped, etc.  I’m only talking about the sales commissions he was paid on that sale.

Readers, feel free to comment on this.

Article was originally published on davekahle.com.

About the Author:

Dave Kahle is one of the world’s leading sales authorities. He’s written twelve books, presented in 47 states and eleven countries, and has helped enrich tens of thousands of sales people and transform hundreds of sales organizations. Sign up for his free weekly Ezine. His book, How to Sell Anything to Anyone Anytime, has been recognized by three international entities as “one of the five best English language business books.” Check out his latest book, The Good Book on Business.

How to Get a Better ROI from CRM Software

Want a Better Return on Investment (ROI) from your CRM?

The low cost of CRM software today has created a feeding frenzy among small to mid-size businesses. Many are buying CRM software to automate their business and improve performance but don’t know where to begin. Unfortunately, very few have realized the value they had hoped for. In fact, in too many cases the CRM system is no longer even begin utilized. So, what went wrong? Ask yourself these two questions.

Do You Have a Business Process?

CRM is all about automating the internal processes that impact how you market, sell and provide service to your customers. If you do not have these internal processes in place, there is nothing to automate.

Do You Have the Experience?

Another challenge facing small to mid-size businesses trying to implement CRM software is the lack of experienced personnel particularity in the area of sales and marketing.

So even if you selected a good CRM solution for your business how will you implement it?

It’s for this reason that smaller businesses need to carefully assess these two aspects of their organization. If you do not have both, no CRM software in the world is going to provide you with the return on investment you had hoped for. Perhaps this is why so many small businesses have struggled with the implementation and use of CRM software.

There is good news here however.  Because the CRM sector has matured quite a bit, there are several very good companies that provide a quality CRM product, and have the expertise in sales, marketing and customer service to help you define your internal processes and present you with best practices for automating those processes so that you do realize a nice return on your investment.

The key to success is selecting the right CRM company that offers not only the software, but the service and support that will ensure your success.

Is it Time to Concentrate on Sales Productivity?

By Dave Kahle

Sales productivity may be a new concept for many sales executives.  “Sales” is easy to understand, and “productivity” is pretty clear, but when those two words are combined the combination becomes a bit vague.

What exactly is sales productivity, and why should you be concerned about it?

Let’s start by examining productivity.  We understand that the notion refers to the amount of labor it takes to accomplish some task or process.  Take your warehouse, for example.  It may take one hour of labor to pick, pack and ship a 50-item pick ticket.  The ratio of one man-hour per 50-item pick ticket is a measurement of productivity.  If your warehouse is going to get more productive, you must find some way to pick that 50-item order in less than an hour.

Your business may grow, and your warehouse may pick an ever-increasing number of orders.  But, if your warehouse doesn’t figure out a way to pick that order in less than one man-hour, you’re just getting bigger, not better.  The lack of improvement in productivity would be a cause for concern.

The same is true of sales.  It may cost you $30.00 in sales costs to acquire $100.00 in gross profit (which, by the way, is a very real possibility).  Over time, your sales person may acquire more and more orders and bring in an ever-growing quantity of gross profit dollars.  But if he always costs you $30.00 for every $100.00 of gross margin, he’s not becoming any more productive.  You’re getting bigger, but no better, at least in respect to your sales systems.

Why you should care

“OK”, you’re thinking to yourself.  “Why should I care?”

If your market is growing rapidly, and if you’re achieving a comfortable and stable average gross margin, and if you don’t have pressures from any competitive sources, then, hey, don’t worry.  You can stop reading this article and move on to perusing other interesting stuff.

But, if your market is flat, or if you’re concerned about shrinking margins, or if you’re looking over your shoulder at the competition, or, if you just want to be really good at sales,  then “sales productivity” is a concept you need to bring into your business.

In addition to fending off some of the more frightening threats to your prosperity, there are some real benefits to improving your sales productivity. Take profits for example.  Suppose your sales force currently costs you 25% of your gross profit dollars.  And suppose that you could cut that by 1%, to 24%.  What would happen to the money represented by that 1%?  It could drop directly to the bottom line, which would not make you unhappy.

But you could use it in other ways.  You could afford to take some strategically important business at lower margins, for example.  Or, you could use it to fund some new technology improvements in other aspects of your business, or purchase a beginning inventory for some new product line.  The opportunities are endless.  The point is, improving sales productivity will free up cash that can be used in several critical places.

In an effort to respond to decreasing margins and competitive pressures, you’ve probably worked on some of the other aspects of your business.  You may, for example, have invested significantly in computers.  Most progressive companies are on their third or fourth generation computer systems to help manage their internal functions.

Why did you buy those computers?  Bottom line — to become more productive.  The competition would have put you out of business by now if you hadn’t.

You may have streamlined your customer service function, tightened up your purchasing and inventory controls, even figured out how to turn your receivables more quickly.  All in the cause of becoming more productive – of trying to stay profitable in the face of competitive pressures and shrinking margins.

But, if you’re like many companies, you haven’t done much to improve your sales productivity.  And this in spite of the fact that sales force costs are generally the single largest cost (after cost of goods sold) that your company has.

You know that if you’re going to survive in an era of shrinking margins, your business must become more productive.  Having worked on improving productivity in other parts of your business, it’s now time to look at that portion which holds the greatest potential for improvements, the largest single cost to our company, the sales force.

A good first step

Here’s a good starting point.  Begin by measuring your current sales productivity.  Create a measurement that my clients affectionately call “Kahle’s Kalculation.”  It will provide you a simple, easy, fair and accurate measurement of sales productivity that you can use over time to see if you’re making progress.  You can use it to measure the productivity of each individual sales person, each group or branch, and the entire company.

From a sales management point of view

Evaluating a sales person so often defaults to a couple of simple things:

1. Are sales growing?

2. How do I feel about this sales person?

Unfortunately, both criteria are like blunder-busses from days gone by.  Gross sales is a measurement that survives as a vestige of a by-gone time.  Sales productivity is a much more telling and sophisticated measurement.

At the same time, “I think…, you think…” is often the mode that much sales management uses to evaluate a sales person.  Using Kahle’s Kalculation can take all the emotion and the subjectivity out of evaluation, and replace it with unassailable measurements.

Because of the way we’ve formulated Kahle’s Kalculation, the lower the number, the more productive is the sales person.  So, if you have two sales territories producing about the same dollars of sales, if one sales person has a Kahle’s Kalculation number of 28%, and the other one has a number of 19%, the 19% sales person is more productive, and therefore, more profitable to the company.

There are other levels and layers to be calculated, but this is a good start.  If you’d like to really dig into this concept, get a free download of Kahle’s Kalculation by clicking here.”

Regardless, this simple first measurement will get you into the mindset of measuring sales productivity and provide you a necessary first step to begin to make powerful and positive changes within your organization.

Article was originally published on davekahle.com.

About the Author:

Dave Kahle is one of the world’s leading sales authorities. He’s written twelve books, presented in 47 states and eleven countries, and has helped enrich tens of thousands of sales people and transform hundreds of sales organizations. Sign up for his free weekly Ezine. His book, How to Sell Anything to Anyone Anytime, has been recognized by three international entities as “one of the five best English language business books.” Check out his latest book, The Good Book on Business.

Are You Dealing with a Professional Shopper?

Window shoppers are not decision makers

If you are in sales you have experienced this before, “the professional shopper”. These are people that throughout the sales process have an amazing ability to come up with objections as to why they are not comfortable making a purchase.

It starts with a laundry list of features or requirements that are mission critical to the decision process. You evaluate them and feel comfortable that your product or service can address these requirements so you demonstrate your solution.   You begin to check off the requirements one by one.

It’s going well, but before you are through – the requirements list starts to grow. Suddenly, they want to know if you have this feature or that function that they may have seen in another solution. Lo and behold you do, so you continue to invest time in convincing them that you have everything they need.

But remember they are professional shoppers and they are not done with you yet. They have other obstacles to throw at you.

“Your price is too high”

“Your contract needs to be modified”

“Not sure your solution will address some future requirements (which have not yet been identified).”

You begin to feel as if you are playing “whack a mole” and this will continue unless you take control of the process.

How to Take Control

You’ve realized that this deal is just not going to happen, but you have invested a lot of time and your solution is a good fit for this prospect. You don’t want to just give up.

The challenge is that this person or group evaluating your solution does not have the authority to buy. You could be selling the only automobile that flies, but it does not matter if they cannot buy your solution which is why they continue to throw obstacles in front of you. They are paralyzed by their own process. The best path forward is for you to remove yourself from their process.

Be professional and write a letter to the evaluator(s) and to management suggesting that you reviewed all their requirements and demonstrated your company’s ability to effectively address every one of them.  Document each requirement and the solution so that they are in full agreement. They already know this, but by putting it in writing you have essentially asked the management why they have not made a decision.

The letter will generate one of three responses.

Response #1: They have other decision criteria that you and the evaluator(s) were not aware of.

Response #2: Other priorities have come up, placing this one on the back burner.

Response #3: They have a strong interest in your solution and will be in touch in the near term.

At this point you are not investing any more time and got them to agree that you have the right solution for their business.  Hopefully they will be back in touch in the weeks ahead.

Comfort Zones

By Dave Kahle

Q.  Do you have any suggestions that will help our local sales reps provide increased value across all markets?  Stretch out of their market comfort zones?

A.  Ah, comfort zones.  The bane of the B2B sales person.  I believe that the loss of productivity and sales effectiveness caused by the limitations of comfort zones is so widespread that it could be the number one problem for sales people.

What’s a comfort zone?  Since we are talking about sales people here, it’s some aspect of the sales person’s job with which he/she is more comfortable than others.  So, it could be that, as in this question, the sales person is only comfortable with some market segments, and is uncomfortable with others.  For example, you may be comfortable calling on schools, but uncomfortable calling on businesses.

Sales people create comfort zones composed of customers, or types of customers, as well.  For example, you may be comfortable calling on production managers, and very uncomfortable calling on CFOs.

And then there are products and services which inhabit their own comfort zones.  Sales people may be comfortable with one product or product line to the point where they ignore opportunities for others.

And, finally, sales people form comfort zones associated with the processes and tools they use.  For example, you may be very comfortable using a paper calendar, and not at all comfortable using a laptop and the company’s new CRM system.

There is nothing wrong with comfort zones, per se.  They are just the job-related expression of human nature.  Naturally we tend to be more comfortable with certain people, places, and things than others.  That comfort comes from a combination of our unique skills intertwined with our experiences.  The combination of those two things leads us to a position:  This person, or market, or product, or process feels more comfortable to us than another one.

The problem is the converse of comfort zones – ‘uncomfort’ zones.  The problem isn’t that you are comfortable with some element of your job; it is that you are uncomfortable with others.  There’s nothing wrong with being comfortable calling on schools, for example.  The problem comes when you are uncomfortable calling on businesses.  There’s nothing wrong with being comfortable calling on production managers.  The problem comes when you are uncomfortable calling on CFOs.

And, it’s not so much the lack of comfort that is the problem.  It is the fact that the uncomfortable feeling leads to a conscious avoidance of the uncomfortable and that, then, leads to a lack of action.  And the lack of action is the problem.

So, what to do?

It has been my experience that comfort is built on the base of confidence.  And confidence comes from only two sources:  Experience and practice.

So, ultimately, you must, to overcome your discomfort, practice, or gain experience in the uncomfortable thing or situation.

Let’s go back to the reader’s question now and answer it.  Here is a set of specific actions you can take to help your sales reps overcome their lack of comfort with certain markets.

1.  Create experience.  Give a specific direction.  Some sales people will respond positively to a direction from you that says something like this: “I want you to call on 10 new businesses over the next two weeks.  I don’t care if you sell anything.  I just want you to learn.  Fill out a little call report that indicates what you did, and more importantly what you learned about that market and yourself as a result of each call.  I’ll talk with you about them after you’ve completed them.”

In this case, you are forcing the sales person into the uncomfortable area and stimulating thoughtful learning.  I can guarantee you that he/she will be more comfortable and confident with the new market after those 10 calls than before.

2.  Help them tip toe into the experience.  Some sales people just won’t be ready to jump right into the water.  You may have to lead them a bit.  In that case, you can either have them come with you as you make calls into the new market, or, assign them to ride with someone who is comfortable in that market, and watch as he/she makes calls.  Again, after each call, I’d ask for a call report detailing the two items listed above.  After a few calls, you can then implement strategy number one, above.

Both of these two strategies attempt to build confidence by creating experience.  But what if you don’t see yourself pulling that off?  Then, fall back on practice.  Remember, your solution must either create experience or initiate practice.

3.  Bring them into the office for a training session on the product, market, customer or process that is the source of discomfort.  Help them learn about it by educating them in the details of that subject.  For example, if the problem is discomfort with a market, help them learn as much as possible about that market:  How big, how many people, who makes the decisions, what their problems are, what their objectives typically are, what they are likely to say, etc.

Build their knowledge, understanding that lack of knowledge contributes to lack of confidence.

But don’t stop there.  Help them practice by role-playing various scenarios.  Comment on the role-plays and help them learn from them.

If you do this effectively, at some point, they will begin to gain confidence in their ability to handle that market, or person, or product, etc.  When they have some confidence, that confidence will spill over into action.  And that action will lead to them developing comfort in what was previously a place of the opposite.

Thanks for asking.

Article was originally published on davekahle.com.

About the Author:

Dave Kahle is one of the world’s leading sales authorities. He’s written twelve books, presented in 47 states and eleven countries, and has helped enrich tens of thousands of sales people and transform hundreds of sales organizations. Sign up for his free weekly Ezine. His book, How to Sell Anything to Anyone Anytime, has been recognized by three international entities as “one of the five best English language business books.” Check out his latest book, The Good Book on Business.