Question and Answer
Q. How do you switch from paying your sales people based on the sale to paying them based on the collection of the sale?
A. Any time you make changes to a sales person’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 sales people.
Then, track the monthly income of each sales person for the last 6 to 12 months. That establishes a base. I recommend that you download a free document called Kahle’s Kalculation. This will show you exactly how to set up this spreadsheet and track the impact
on the sales person as well as the impact on the company.
Now, project forward, realistically estimating the financial impact of the change on each sales person and the resulting impact on the company’s costs. In this particular case, I suspect that the change will have been fully implemented in no more than three months. So look at what it’s going to cost each sales person, one at a time. There may be a sales person, 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 sales person where every account pays over 30 days. In that case, the change will have a more pronounced impact.
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Regardless, you now know with some precision what the change will cost each sales person. 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. For example, you may have a sales person who averages $5,000 a month in commission income under the old plan. When you examine the spreadsheet, you see that the transition to the new plan is likely going to provide the sales person with $4,100 the first month, $4,700 the
second month, and back up to $5,000 the third month. The total impact to transition to the new plan over three months is $1,200. So, now the question is should you help deal with the $1,200 shortfall?
One by one, individual by individual, answer this question: If this plan puts extra hardship on the sales person, 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 sales people will be significantly impacted, to the degree that they may decide to leave your employment, and you don’t want that...[Click Here To Read The Entire Article Online]
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