I thought it was about time to dust down my keyboard and put finger to keys, or two fingers in my case, and write a post. It seems like it has been weeks and that is because it has! Although not posting on my site I have written a couple of pieces for the Sales Bloggers Union - Add Value by Asking Great Questions, Sales Process often stifles sales and Motivating the Buyer. I have also written a paper on Sales 2.0 which will be part of an eBook that Brad Trnavsky will be publishing on his Sales Management 2.0 site. My paper is… Sales 2.0 Should You be Afraid or Excited?… and here are my conclusions…

Web 2.0 has the possibility to radically change the way sales systems help sales professionals. The focus will be on providing support to the individual, not the organisation. Over time organisations will begin to understand that if they help the individual sales professional this in turn is helping the organisation. No longer will organisations dictate that the sales system must be used and opportunities must be logged to be included in commission payments. If the focus is on helping the sales professional and the right tools supplied then the information will flow from the bottom up to the top. Management philosophy will also have to change from demanding everything has to be in the pipeline to making sure everyone shows how they are making their number.

Companies will no longer run their systems in their own silos but will open them up to collaborate across the full sales team. Collaboration may even evolve to include trusted people outside the immediate sales team to sales professionals in other organisations that share common customers. Social networking will make this possible.

However, large organisations will find it difficult to adapt full Sales 2.0 because of their investment in their CRM systems. They will instead bolt on applications in the hope that they will get the benefit; they won’t. Unless there is a large forward looking organisation out there that has the vision to be different then it is going to be left to the small organisations to lead the way. Small organisations can become big organisations that can threaten the traditional dominant company… just look at Google versus Microsoft. Who is a threat to whom? Who is using Web 2.0 and Sales 2.0 technology? I rest my case! Large organisations need to be afraid, very afraid. Sales professionals should be excited as there is a whole new world of possibility just waiting to happen.

To find out how I arrived at my conclusion you will need to read the paper in the eBook when it is published and read the whole 10 pages!

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My old hobby-horse has not had a decent outing for some time and so after much neglect I thought I would get it out… as they say… and for the uninitiated in the use of the term ‘hobby-horse’ which I’m sure there are very few…. I’m not referring to a child’s toy horse nor the May Day hobby-horses that run riot during the Padstow Obby Oss festival in Cornwall each year… no, I’m referring to my favourite topic… Pipeline Management.

I thought it was time to share my old versus new comparison. Unlike the Padstow Obby Oss festival that is steeped in tradition and has its roots back to the 14th century and has not changed much for hundreds of years the same nostalgic view of things past should not be held out for Pipeline Management.

To improve… to get better… things need to change and if there is anything in the B2B sales arena that needs a damn good change… it has to be pipeline management.

However, before I share my old versus new musings with you I would like to point out that Pipeline Management is also linked to another ancient custom… the quest for the Holy Grail. This legend or piece of mythology (not to be confused with methodology) has its origins dating back to the late 12th century when Robert de Boron, the French poet wrote Joseph d’Arimathe… all in octosyllabic verse… about how he, Joseph that is, used the Grail to catch the last drops of blood from Jesus’ body as he hung from the cross… apparently, as legend has it, the grail has magical powers. Through various routes it, the Grail that is… as legend has it… made its way to Great Britain where some careless soul lost it, or put it somewhere safe and wont tell anyone… people have been searching for the Holy Grail ever since… without luck.

The Holy Grail of the B2B sales world is accurate forecasting… sales directors and managers alike have been searching for years the secret of accurate forecasting… in the belief that once obtained they will be the custodian of ultimate power… they will be in control of their business!

Now, if sales management are looking for the holy grail of sales using the traditional pipeline management methods… then to coin another phrase… they are flogging a dead horse… no matter how hard you flog it, it isn’t going to do any more work… no matter how hard you insist people use the corporate system… they won’t… there are other stronger forces at work that prevent them from doings so… self preservation. Pipeline Management has to be for the benefit of the sales professional first and corporate second… not just for the benefit of the corporate. I’m advocating personal pipeline management rather than corporate pipeline reporting… notice the difference!

So… here are my 22 points of old versus new…yep… 22 points!

Click on the picture to make it larger… it will be easier to read, trust me.

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Here is the fourth post in this series… the final relationship unmasked.

However, before I move on and provide the last definition I thought I would explain that there is a ’so what’ that needs an answer for this series. It’s all well and good identifying the different types of business relationships, but there needs to be a purpose… we need to do something with them, they have to mean something, they need some form of application… but before I dive into the so what here are the details of the last business relationship…

Business Relationship

As I mentioned in a previous posts, I’m sure there may well be more than four, but these are my four…

• Transactional
• Dependable
• Consultative
• Partnership

Partnership

Relationship with Customer: High level excellent relationships. CxO level relationships, middle management and low level.

Relationship Status: Trusted Business Advisor.

Customer’s Knowledge of their situation and how Vendor can help: High in relation to understanding their business. Will have good understanding of the strategic relationship between own business and what the vendor can help them with.

Customer’s Risk: Considered to be high due the nature of looking to solve strategic problems. However, vendor trusted to help manage risk.

Customer’s Expectations of Vendor: To proactively identify and help solve business issues. To have good multidisciplinary relationships. To have problems quickly resolved.

How the Customer Buys: Vendor / Customer or both jointly identify business issue. Vendor submits proposal. No RFP issued.

Vendor’s Value to Customer: Understands customer and their market. Proactive at identifying strategic problems to solve in order to develop customer’s business. Delivers solutions that reduce customer’s risk.

Customer’s Value to Vendor: Will generally have large spending power that is secured in the favour of vendor due to trusted business advisor status. Major projects.

Salesperson’s Value to Customer: High due to strong personal relationships and acting as trusted business advisor. Adds value to people by helping them achieve their personal agendas. Acts as customer advocate in own organisation. Finds the right resources to deliver on promises. Facilitates peer to peer relationships.

Competitive Advantage: Relationships. Understanding of customer’s business. Ability to deliver strategic solutions. Possibly share in risk with customer.

Salesperson’s Value to Own Business: Relationships with customer leading to managing strategic client and thus maintaining predictable high volume of revenue.

Role in Customer Process: Part of the customer team that looks at the strategic development of the company.

Business Relationships… the so what

The diagram below (click on it to get a bigger and better view) shows how the four business relationships can be brought together to form an anlysis of the sales territory. I define a sales territory as a set of managed or targeted accounts from which the sales professional is expected to find, manage and close opportunities in order to meet their sales target. It is therefore about focusing on and managing those accounts that currently provide the greatest return for the resources invested. However, in addition, territory management is about the future and is therefore also about identifying and developing those accounts that will provide maximum future returns.

There are two things to consider if you wish to maximize your return on resources deployed… the first is how much money can the customer spend, if you like… the size of their wallet for your type of products / services - Potential - and what is your Influence. The potential should be measured over a 12 month period and the grading Poor, Reasonable, Good and Excellent will differ from account set to account set. The influence I will cover in a minute, but first I want to explain how this matrix is used.

Territory Analysis - an analogy.

Territory analysis is like going deep sea fishing. You don’t just go out on a boat on to the vast ocean and throw your line over the side hoping to catch something. An experienced skipper of a boat will know where to go fishing… it will depend on the time of year, the weather and the tides and then once you know where you are going you need to use the right bait. The matrix above is about helping you to know where to go fishing… and depending on which quadrant you want to go fishing in… will also depend on what bait you use. Transactional selling is very different to Partnership selling.

Knowing Where to Fish… the proactive part of selling

If you have a number of accounts, broken down into a number of different Decision Making Units (DMU) then you need to know where to go fishing for the biggest returns. Go out to catch more transactional business will not provide the best return for time employed… low influence , low spend… not the best combination. So the first use of the matrix is a quick analysis of where to going fishing. The amount of time it takes you to complete the matrix should be no more than 30 mins… and if you get it wrong it doesn’t matter all you are doing is giving some indication of where to fish… if you find out more info, then make changes.

There is a lot more to using this diagram and how it helps with understanding and managing the territory, however, in the hope of trying to keep this post to a reasonable length… not massively too long… then I will have to leave the further explanation to another day and therefore finish this post on a final thought… business relationships and pipeline management.

Business Relationships and Pipeline Management

Hopefully a number of you reading this will have read my past musings on pipeline management and may well have got the impression that it’s a passion of mine… well, you would be right if you did. Have a look at the diagram below… a diagrammatic view of Firstborder’s pipeline methodology… and see where new deals enter the pipeline depending on the business relationship for that deal. Have a look at the competitive advantage and the primary sales discussion… again, like the diagram above, click on it to get a better view.

I don’t know about you, but if you are involved in a high value business to business opportunity then I know where i would want to enter the pipeline… too far to the right and I have no control and the opportunity will have to sit in the ‘upside’. Come in at the left… right at the beginning of exploring the need… and the opportunity will flow along the bottom… in the ‘commit’… and in your control.

There is a lot more to be said about both subjects… Territory Management and Pipeline Management, but I’ve got you started with two key diagrams… and hopefully started to answer some of the ’so what’ about business relationships.

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Here is the third post in this series. Thanks to everyone who have posted comments on the first two posts in this series… good additions.

The Four Business Relationships

As I mentioned in a previous posts, I’m sure there may well be more than four, but these are my four…

• Transactional
• Dependable
• Consultative
• Partnership

Have a look at the Transactional and Dependable Business Relationship to compare and contrast.

Consultative Business Relationship

Relationship with Customer: Relationships developed with middle management. Poor to good at best. Relationships developed further while pursuing individual opportunities.

Relationship Status: Solution Architect.

Customer’s Knowledge of their situation and how Vendor can help: Understand that they have a problem. They will be looking to address it or they are unsure how to address it. The problem may not have high enough priority.

Customer’s Risk: Will depend on the project being undertaken. Customer often has trouble accessing it. On strategic projects will often defer to partnership supplier.

Customer’s Expectations of Vendor: To have professionals qualified to give advice in order to solve identified problems. Receive information in terms of benchmarks and previous experiences. To respond to request for proposal.

How the Customer Buys: Customer identifies problem and sends out a Request For a Proposal (RFP) document.

Vendor’s Value to Customer: Help the customer to identify and analyse his problem. Propose specific solutions that are suitable. Provide technical pre-sales consulting.

Customer’s Value to Vendor: High value project based opportunities. Potential to develop relationship to Partnership status.

Salesperson’s Value to Customer: Skilled in analysing and giving technical advice and facilitating others from vendor team to do this. Facilitates customer towards the most suitable solution. Manages sales process and responsiveness of Vendor.

Competitive Advantage: Compete on benefits delivered as part of solution. Fit of solution to requirements. Price of solution versus benefit.

Salesperson’s Value to Own Business: Identification and winning new markets / new customers.

Role in Customer Process: Problem identification and solution provider.

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It’s Sunday morning, it’s sunny, I’m still paying taxes, breakfast is on its way and I’m about to do a hard days graft in the garden… and the only thing not dependable in that list is the weather… it’s a weekend… it should be raining! A yoke I often heard when I lived in South Africa… in Cape Town, what follows two days of torrential rain… Monday!

It’s the dependable bit that’s the link to my little intro… it’s the next business relationship that I want to cover in this series of four.

The Four Business Relationships

As I mentioned in a previous post, I’m sure there may well be more than four, but these are my four…

• Transactional
• Dependable
• Consultative
• Partnership

Have a look at the Transactional Business Relationship to compare and contrast.

Dependable Business Relationship

Relationship with Customer: Relationships with low to middle management with depth of relationship good to excellent.

Relationship Status: Product Supplier.

Customer’s Knowledge of their situation and how Vendor can help: Will have excellent experience of Vendor and know capability and product/ services.

Customer’s Risk: Low to medium depending on purchase. Will expect vendor to respond well if problems encountered.

Customer’s Expectations of Vendor: Quality, delivery and support. Will be willing to pay higher price than transactional for the support. Coverage for against potential problems. Depend on relationship to add value.

How the Customer Buys: Transactional to project based. Will probably not issue RFP for projects.

Vendor’s Value to Customer: Provide quality, reliable, responsive service, delivery and products / services. Proactive in identifying products and services that may help customer.

Customer’s Value to Vendor: Vendor attains high level of customer’s spend. Referencable customer. Dependable revenue.

Salesperson’s Value to Customer: Understands the customer and their business. Takes into account the specific needs of the customer. Able to facilitate vendor’s processes to aid customer. Makes sure commitments for products, prices, services, lead times, etc are upheld. Makes it easy as possible for customer to do business with vendor.

Competitive Advantage: Customer views vendor as very dependable and will buy in preference to others.

Salesperson’s Value to Own Business: Optimise relationships with customer while keeping sales cost under control. Maintaining predictable revenue stream.

Role in Customer Process: Helps the customer to buy. Very responsive and can be proactive. Is interface to Vendor to ensure commitments are fulfilled?

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I got an email from an old friend recently… not that she would like me to describe her as old, which I’m not, but the friendship can be described as old, but not older than her, because that would mean we were friends in a previous life, which is taking things a bit far. Anyway, Belinda now lives in Australia, which is a few miles away from here in the UK and her recent email had - small world - in the subject field. Apparently she has just delivered some training down under to an old friend of mine… I’m not going there!… and expressed the surprise of it being a small world. Today, I get a call from Emanuel who lives in Sydney (it’s in Australia for those who are not good at geography) and he had read a number of my posts and materials on pipeline management and wanted to know more. We had a very interesting conversation and he seems to be doing some very new stuff with workflow in sales management… more about that another day… anyhow, we got on to the subject of talking about the fact that there are different business relationships in selling. I couldn’t agree more and was having the very same conversation with some customers of mine whom I happen to be visiting in Scotland yesterday… it’s an international topic you know, business relationships… so having this coincidence happening one day after the other has prompted me to write this post on business relationship.

The Four Business Relationships

I’m sure there are more than four, but I’ve settled on four and they fit very nicely into a both the pipeline management model and the Territory Analysis model I use. The four types are…

• Transactional
• Dependable
• Consultative
• Partnership

So what I thought I would do is share with you how I categorise each of these relationships under various headings. I’ll start this post with the first type of relationship and follow up over the next few days with the others.

Transactional Business Relationship

Relationship with Customer: Low level. Technical buyer. Depth of relationship weak to good.

Relationship Status: Commodity Supplier

Customer’s Knowledge of their situation and how Vendor can help: Excellent product knowledge. Knows requirements. Will have good grasp of required product or service.

Customer’s Risk Considered to be low: Customer will take responsibility for it.

Customer’s Expectations of Vendor: To attain the best price, lead time, payment terms, etc.

How the Customer Buys: Customer buys against purchase framework or calls direct with request or responds to marketing initiative.

Vendor’s Value to Customer: Choice of products, excellent quality, good prices, availability, support, ease of purchase.

Customer’s Value to Vendor: Low value in terms of individual deals. Transactional sales are the ‘bread & butter’.

Salesperson’s Value to Customer: Low, particularly if business is conducted across the web. If not web, then transactional business is often telephone based. Value in explaining choices, by making it easy for the customer to buy and by allowing the customer to negotiate favourable terms. Helpful relationship to customer.

Competitive Advantage: Compete on price, feature, function, lead time, availability, etc. Salesperson Value to own Business None if web based. If salesperson involved, then chance of differentiating choice against competition.

Role in Customer Process: From none to helping customer select right product.

So, that’s the transactional business relationship explained and as mentioned I’ll follow up over the next few days with the other three… and so it’s thanks to Emanuel for the prompt… which during my conversation with him it turns out that he used to work for Lucent in the UK and in a previous life (not a real life, but a previous job) I used to provide sales training to Lucent in the UK… our paths did not meet then… but it seems it’s a small world, particularly with those down under!

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It’s a nice catchy title – good to great – and what’s more it only takes a day to understand how to get there… I wish it was my idea, but it’s not because it’s the brainchild of Chris Whyatt. I meet Chris a number of years ago way up North and recently he decided to look me up to get my view on a new thing he was planning. I gave him some feedback and agreed to meet up the next time I’m in his neck of the woods… about 300 miles from where I live. However, unbeknown to me, although Chris’ office is up north, he has moved south for love, not necessarily for the area, although he may love it, but for the affection of a good lady… which means instead of 300 miles he is about 15 miles away. So due to the convenience of living near each other we met up in the local pub (very British thing to do) and Chris took me through his Good to Great Day concept and introduced me to the SalesMAP™ Sales Readiness Model.

I have to say I was impressed by both the concept of a good to great day and the SalesMAP™ Sales Readiness Model which in an alternative vernacular is a sales capability benchmarking model.

Good to Great Day
As the name suggests this is a day’s exercise. It’s a facilitated day for around 10 people covering all levels from top management down to internal sales people… umm… those last few words don’t sound right… down to internal sales people… sounds a tad derogatory but can’t at this moment think of any other way of putting it… so, a good cross section of people from the business are involved in the day.

The day is a facilitated self-assessment against the SalesMAP™ benchmarking model. The team decides what is good now, what great looks like and what they need to do to get from good to great. The gaps are identified, ranked in terms of importance and typically the top 3 are chosen to take forward. The output of the day is a plan of actions, owners, dependencies and timescales.

Now what I think is great about the day (excuse the pun) is that it’s a facilitated session. It’s not a group of consultants that come in and tell you what’s wrong… it’s the people in the business saying what’s wrong and what’s needed to put it right… and best of all, because it is the team that identify all this they are then motivated to put it right… what more could you want… a motivated team with a plan!

SalesMAP™ Sales Readiness Model
It’s not just the facilitation that is good about the day, but it’s also the model that the facilitation is based on. SalesMAP™ focuses on sales operations and enables organisations to understand their current capabilities, measure the gap against their aspirations and identify priorities for change. The model focuses on the following areas of sales operations…

1. Understanding the market (current & target market requirement)
2. Capability & pricing information (quality, accuracy & availability)
3. Creating opportunities (proactive and reactive)
4. Qualifying opportunities (objectively or subjectively)
5. Developing win strategies (price, strategies, solution and differentiators)
6. Proposing & presenting (compelling or me too?)
7. Negotiating & closing (maximising revenue and margin, protecting commercial risk)
8. Reviewing & learning (continuous improvement)
9. People (understanding, skills, time)
10. Sales processes (informal, formal, effective?)
11. Management information & reporting (fit for purpose, asset or liability?)
12. Measuring success (defined, understood, measured and reviewed?)

Each of the above areas of sales operations have been mapped and defined in the model and each stage of the baseline from Unacceptable, Poor, Bronze, Silver and Gold standards have been defined. I like the model.

What next?
Well, unlike Victor Kiam who liked the shaver that much he bought the company… I’m not going that far, but I am teaming up with Chris to offer this unique approach and so will be working together on a number of opportunities. If you want to know more then contact either me or Chris and we would be only too pleased to help facilitate you and your company from good to great!

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I’m working on a full post for this series, but this recession theory of mine seems to be gathering pace… bit like the storm that is hitting the UK at this very moment! Well, it was this very moment when I started writing this post yesterday, but today is today and the storm is dying down… shame the same can’t be said about the recession.

I have been writing about the coming recession since, probably this time last year. I have put posts up on this blog, I’ve added to other people’s blogs, I’ve posted and answered questions on LinkedIn. Some people have agreed with me and others haven’t, however, it seems I’m right as a number of people who know about this stuff seem to be saying that the US economy is now in recession and even those who are optimistic say they US is all but in recession. Unfortunately, even though I’m writing from the UK we are not immune… the old saying… when America sneezes, Europe catches a cold… is so true!

The Evidence
There’s lots of it around and here is a little that I picked up over the weekend…

The US Economist, Paul Ashworth, at Capital Economics says… “the debate is over… the 63,000 decline in non-farm pat rolls in February is near conclusive proof the economy is now in recession”

Apparently, the end of last week, Larry Summers, the former US Treasury secretary said the economy is… “currently in recession”

The chief economist at JP Morgan, Bruce Kasman, has said… “we now think the economy can be described as having entered a recession in early 2008”

However, still, not everyone agrees that America is in recession… other headlines over the weekend…from the BBC…‘Bush insists US not in recession’… well, that’s cleared that up then!

Why you should be concerned
You don’t need me to tell you that you need to be concerned… but I will because it’s my blog and I need to write about something!

It’s simple, a slowing economy means consumers don’t spend and if consumers don’t spend, no one spends. There will be timing differences across the economy, but eventually, in a recession money stops flowing between people & shops, between shops & suppliers, between suppliers & manufacturers and between manufacturers & raw material suppliers. Now, if you are in sales that’s not good.

Selling is going to get tougher, there will still be deals to be won, but companies are going to be much more prudent about splashing their cash… there’s going to be no splashing and there’s not going to be much cash… so you are going to need to win more from less… which has been my key message in this series.

Why Part 3.6
I’m now seeing companies beginning to be affected by the recessionary economy. Last year I saw consumers starting to cut back, and now I’m seeing large corporates cutting back. There is going to be more pressure on the sales pipeline than ever before and irrespective of what your company’s approach to pipeline management is… you need to be prepared. Making your number is going to recession proof your own part of the business. Your management may be doing other things to recession proof the business, such as reducing spending, reducing head count and other equally unpleasant things. So, make sure you are seen as a revenue generator and not a cost contributor.

Pipeline management is going to be the most important discipline in recession proofing you own part of the business and in my experience this is the least understood discipline. Many people think they have it covered, they think this is the prerogative of the company, but it’s not. Give the company what they want in terms of their corporate pipeline and make sure you manage your own… Personal Pipelines have come of age!

I therefore thought I would add this post as part of the recession proofing series – to make you aware that Personal Pipeline Management is going to be the most important discipline in the coming economic downturn… there… avoided the ‘R’ word!

Tomorrow I’ll post my Pipeline Management Guidelines… complete with full colour diagram… something for you to look forward to!

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This is not a full post, so I’ve called it 3.5 as I wanted to get something up today, have got halfway through this post and have been called out to an emergency… a customer is in danger of not making their number and needs help!… needs must… and so half a post it is.

If you have been following this series of articles you should have by now worked out the secret of recession proofing your business and most of all how it differs from doing business in a buoyant market… but in case you haven’t I’ll share my thoughts with you… I’ll deal with the last point first.

Selling in a Recession versus Selling in a Buoyant Market
You do the same, there are no differences… or I should say… there should be no differences. The fact that there are means that when a downturn comes many sales professionals are not prepared… they have been taking orders, not selling. If they had been selling they would have done even better. Taking orders is a numbers game… 3 times target in pipeline to succeed… win one in three means wasted effort on 2 deals… 33% efficiency. When the downturn comes they can’t get three times their number in the pipeline… the numbers no longer stack up!

… and now to the first point…

Secret of Recession Proofing your Business
Focus on the deals you can win… show how you are making your number… progress each deal you can win to closure.

What I’m suggesting you do to recession proof your business is exactly the same as I would expect you to do when business is good…. If you get used to doing this when business is good, you will be safe when times are hard. Even when times are hard, people are buying… you just need to win more of a smaller pie.

The secret of recession proofing your business… focus on what you can win… less is more.

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If I am not much mistaken I do believe us Brits invented the game of Rugby, as well as Football (soccer to some), Cricket and probably Tennis… and where are we on the world stage of these fine sports?… not at the top of our game that is for sure. So, how do we do in other sports like swimming, running, jumping, etc… with a few exceptions we are also not at the top… us Brits are not known of sporting prowess.

All for One and One for All
With us hosting the 2012 Olympics we need to raise our game or be embarrassed as hosts. It does not take a genius to recognise this and several programs are under way to find, develop and nurture the talent. However, our problem has its foundations in our schools. My kids had the awful experience of attending a school that did not recognise individual sporting effort. There was no competition… everyone went out on the field and everyone won. There was no incentive to achieve… everyone got the same reward… all for one and one for all… does not cut the mustard… where’s the incentive to compete?… where’s the incentive to work hard?… where’s the incentive to go that extra mile?… if everyone gets the same reward no matter what their effort, why should you work flat out when others don’t?

Bonus or Commission
It’s the same in business. Bonus schemes do not generate extra individual effort to achieve… those that put the effort in will have probably done it anyway without the bonus being there. It’s one of the reasons why sales guys are paid a commission rather than a bonus, because the commission scheme rewards individual effort… or does it?

Commissions are paid as an incentive for sales people to close more business… to go the extra mile to make sure business comes in and the company prospers… without business there is no prosperity… we all know this! Put a non commissioned sales guy against a commissioned sales guy and I will tell you who will bring in more business. So, we are all agreed, sales guys need to be paid commission to encourage and motivate them to go the extra mile and bring home the bacon!

Where it Starts to Go Wrong
The company does not want to pay out loads of money for no reason. They don’t want to pay commission to lazy sales reps who don’t earn it. They don’t want to make it too easy for them. They don’t want the sales rep selling something that can’t be delivered. They don’t really want to pay until the customer has paid. They don’t want to pay if there is no profit… and in response the commission plan starts to get complex and the incentive reduces in proportion to the complexity.

The Biggest Mistake
Other than the making of a complex commission plan the biggest mistake that most companies make is that they pay commission on revenue rather than order. The first problem here is that the sales guy is not in charge of delivery… that is someone else’s responsibility. If you sell some form of product that is shipped straight away then paying on revenue is not such a big problem. On the other hand, if you bag an order and revenue comes in over time then this is a big problem. A good example of this is services companies… win a big order and delivery is scheduled over months or even years and so the sales guy is paid as it gets billed and he has not control over this. How is the sales guy going to measure his sales earnings? Can he see where the money is coming from? If he can’t see it, if he can’t measure how he is doing, if he can’t project when he will hit accelerators, then the incentive is diminishing. Now he has one eye on delivery, when you already have an army of people doing this, and one eye on future sales. If you want the sales rep to perform he needs both eyes on sales.

I know a services company who pays on revenue and so much time is wasted on trying to figure out what’s being delivered the sales reps have given up trying to figure it and they now treat the commission as a bonus… i.e. the incentive has gone.

Keep It Simple
You don’t want sales guys responsible for delivery; you want them responsible for orders. Other people are responsible for converting orders into cash. If you have complex delivery then measure the sales rep on orders… either Total Contract Value or Annual Contract Value… don’t link their commission to revenue as com plan will get very complicated and a lot of effort goes into managing it. Tracking is easy and everyone knows where they are.

Go the Extra Step
Lastly, I’m constantly flabbergasted at how most companies don’t fully use the commission plan to provide the incentive for the extra push. The company will tell you how you have made to date, but don’t provide the tools to see how you could earn if certain deals come in. Sales reps need to start forecasting their commission rather than sales… but if the commission plan is too complex they can’t do this and the very reason for paying commission has gone… to provide the incentive to go the extra mile.

My daughter used to swim for a club… we had to get her doing something competitive… and I remember watching her do a time trial for her county time. It was a 400m freestyle swim and she missed her time by 1 second. She finished exhausted, she did not look like she could have done anymore. However, if she had known she was going to miss by 1 second do you think she would have found that extra time?… I’m positive she would. In fact I believe if she was 4 seconds down she could have found it if she knew early enough in the swim that was how much she was going to miss by. There are 6 turns in a 400m swim, she could make up 1 second a turn if she knew. However, knowing you are going to miss by 4 seconds on the last length would not have helped. Knowing where you are against your predicted outcome helps with that extra effort…. It’s no different for sales reps… know how you are going to finish early enough and if you are going to miss your target you will have time to do something about it… you can’t make it up on the last length!

In Summary
Putting commission plans together is not easy. Neither the company nor the sales rep wants to feel cheated. Simple plans are easier to maintain, easier to monitor and provide the greatest incentive. Pay on what’s in the sales reps control; avoid paying on what they can’t control. Have the sales rep focusing both eyes on bringing in the orders rather than one eye on orders and one eye on others who are responsible for delivering his commission.

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