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Sales Commission - What Return Should You Expect On Your Sales Compensation Investment?

This article answers the following questions:

* How do most companies look at return on investment (ROI) for their sales compensation expense?

* What portion of sales compensation expense do companies allocate to managing existing accounts versus pursuing new accounts?

* Do most companies expect their salespeople to generate new, additional gross profit each year that is equal to or greater than their compensation?

One conclusion I have reached after working with many different kinds of companies is that there is little commonality in how they establish the desired return on investment (ROI) from their sales compensation investments. Every company's circumstances are different; as a result, what might constitute an acceptable ROI for one company will not be considered acceptable by another company.

Here are some questions to consider as you determine the desired sales compensation ROI for your company, and how that ROI should be split between existing accounts and new accounts:

* What is the value of each sales dollar produced? Is the value different if a sales dollar is produced by an existing account versus a new account?

* How does the time and effort required to maintain (and grow) existing customers compare to the time and effort required to bring on new accounts?

* Do accounts operate pretty much on "autopilot" once they have been brought on board, or must your salespeople continue to invest significant effort (in terms of internal prospecting, opportunity qualification, proposal generation, relationship management, etc.) to maintain sales volume and profitability?

* Once an account has been brought on board, can ANY salesperson manage the relationship, or is there something special about the relationship that exists between the current salesperson and the account?

I have seen cases where management held the opinion that ANYONE could manage and maintain the volumes of business that were being produced by major accounts. They questioned why they should continue paying high compensation to the salespeople who were managing those accounts.

In some cases management chose to reduce commission rates, which caused the salespeople who had been managing the accounts to leave the company. In other cases management simply switched account assignments and assigned less "expensive" (in terms of compensation) salespeople to the major accounts. Far too often the outcome from either approach was a slow decay in revenue that eventually added up to millions of dollars in lost sales.

Why did this decay in revenue occur? Close inspection identified two key reasons:

* The replaced salespeople had enjoyed truly special


relationships with key players in the accounts. The key players' loyalty was to the salespeople, not the salespeople's employers. When the salespeople left, the key players saw little reason to continue to favor the salespeople's (previous) employers with their business.

* The replaced salespeople were extremely responsive and provided extraordinary levels of service. In some cases these salespeople were unusually successful in navigating their employers' informal networks. This enabled them to solve problems and do favors for their customers with a timeliness that other salespeople could not match.

If you determine that some of your salespeople DO have enough bandwidth to bring on new accounts, here are questions to consider as you set their "new business" goals:

* What level of market penetration has your company achieved to date?

* How much additional market penetration can your company reasonably expect to accomplish within a specified time frame?

* How many potential prospects exist in each sales territory?

* How do these potential prospects compare to your existing customers in terms of revenue potential?

* How many new prospects will a salesperson need to close to make any appreciable difference in their numbers?

Here are some final questions for you to consider:

* What percentage return are you currently receiving on your sales compensation investments?

* Do your salespeople produce multiples of their compensation in terms of profits back to your company?

* Is it really reasonable to expect your sales compensation ROI to grow every year?

In conclusion, the questions asked in this article can help you determine the desired return on your sales compensation investment, plus develop targets for ROI from existing accounts and new accounts. Don't let the fact that some salespeople earn high compensation cause you to set your ROI goals too aggressively. Instead, focus on the question, "How much return do we receive on the sales compensation we pay?" A solid return on your investment means you are completely justified in making that investment!

About the author:
Sales performance expert Alan Rigg is the author of How to Beat the 80/20 Rule in Selling: Why Most Salespeople Don't Perform and What to Do About It. His company, 80/20 Sales Performance, helps business owners, executives, and managers DOUBLE sales by implementing The Right Formula(tm) for building top-performing sales teams. For more information and more FREE sales and sales management tips, visit http://www.8020salesperformance.com

 

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  • 10 critical questions to ask before hiring a consultant

  • 10 lessons for every shoestring entrepreneur

  • 10 profit boosting tips to increase the success of your affiliate program

  • 10 reasons why companies should start doing business online

  • 10 ways for entrepreneurs to find more time

  • 11 secrets to leadership in sales

  • 11 ways to elevate your sales

  • 3 steps to turning ok sales into unbelieveable results

  • 5 tips for savvy use of your home equity line of credit

  • 6 steps to laying out your competitive strategy

  • 7 explosive strategies to maximize your google adwords campaigns

  • 7 tips for product enhancement to increase your sales

  • 8 procedures to take control of sales and marketing

  • alarming marketing trend

  • are you still broke with 10 000 people in your downline

  • army ranger reveals how to control corporate stress

  • assumptions the hidden sales killer

  • astute pricing by sales representatives can expand profit

  • a new look for business in the future

  • a power technique for boosting sales

  • a profitable growth formula for sales managers

  • a real crm strategy or just tracking customers

  • bankers in denial

  • black belt sales meeting moves

  • book summary the e myth revisited

  • boost profits dramatically with consignment sales

  • boost your business sales with credit card payment solutions

  • building an email marketing list

  • businesses should specialise not generalise

  • business after the iraqi war

  • can a sales leaseback arrangement make investing in orlando investment more safe and reliable

  • cash flow management

  • cash flow profits and the cash conversion cycle

  • celebrating successes the power of compliments

  • characteristics of high performance teams

  • coaching for success

  • commodity sales prospecting ‹¨« how to stand out from your competitors

  • communicating value

  • conducting business through b2b e marketplaces

  • confessions of a reluctant saleswoman

  • create a positive upbeat can do workforce and dazzle the customer with your caring

  • creating your internet marketing plan

  • crm for beginners customer relationship management basics

  • crm sfa that accelerates sales the sales process integration approach

  • customer service and call center outsourcing whats the buzz

  • dialogue the four dialogic principles for successful communication

  • does your business need a toll free 800 number

  • doing business online private b2b exchanges

  • domain name and web hosting hell

  • dont shoot the sales team

  • do you feel overwhelmed running a web business try this

  • do you have a picture of your customer

  • do you need a personal assistant

  • easily slash your comms costs using web conferencing

  • education and outsourcing 2 ways to improve your business

  • einstein definition of insanity

  • entrepreneurship what does it really mean

  • financial services marketing insights a marketing compass

  • finding rest for the direct sales company mom

  • first the key to successful sales

  • five dirt cheap ways to increase sales in your cleaning business

  • five strategies to strengthen your companys financial management

  • five tips for analyzing an income statement

  • five top tips for a prosperous 2004

  • forecasting and surviving a layoff or downsizing

  • gaining business intelligence

  • get coached

  • good bye bobby knight and all the sales managers like you

  • grants loans free credit cards and credit repair the whole truth and nothing but the truth

  • hiring and retaining good employees

  • hiring the best sales athletes

  • how to beat the 80 20 rule in sales performance part 1

  • how to beat the 80 20 rule in sales performance part 2

  • how to build a repeat client base in automobile sales

  • how to create multiple revenue streams for your home business

  • how to create your own successful and profitable affiliate program

  • how to cut duty cost and increase profit as an importer

  • how to decrease profits without really trying

  • how to define your companys sales job part 1

  • how to define your companys sales job part 2

  • how to easily increase your profits

  • how to enhance quality in your business

  • how to find an investment advisor

  • how to get money back for your process and procedures investments

  • how to get rich with network marketing

  • how to identify a problem solver

  • how to improve your management procedures usability

  • how to increase sales with automation improvements

  • how to join the 5 of internet business real money making pros regardless of the products you sell

  • how to maximize account penetration and jump start sales

  • how to maximize sales by minimizing windshield time

  • how to meet quality standards with iso 9001

  • how to promote your home business with ebooks

  • how to start a business plan

  • how you can learn to be a better manager

  • hunters and gatherers are you serving both their needs

  • hurdles to cross cultural business communication

  • if it was easy everybody would do it

  • if one does not do any planning one is planning to fail

  • increase sales in your home business with these 10 simple ideas

  • increase your income through international trade

  • increase your influence increase your sales

  • increase your pipeline deploying the cost effective sales team

  • increase your sales by 30 using internet collaboration networks

  • increasing sales with customer interaction points

  • index

  • industry pro interview expanding your market reach for more sales

  • internet marketing vs forex currency trading

  • introducing a mystery shopping program employees

  • investors avoid these 5 common tax mistakes

  • iso 9001 compliant program steps to build

  • is it time to hit the reset button on your sales department

  • is your business profitable

  • is your company growing fast enough for you

  • keeping your sales team motivated

  • leadership lessons for sales managers

  • leveraging open source technology

  • like it or notyoure in sales

  • lone wolf lead wolf

  • looking for a direct sales party plan company do you know what questions to ask

  • making sales online is easy isnt it

  • making sales online is easy isn t it

  • managing your business cash flow

  • maximize your home based business website sales

  • menu driven business planning

  • money management

  • multiply your sales

  • networking 101

  • network marketing book lovers guide 10 hot reads in 2005

  • no degree no problem

  • online success

  • only the weak ones quit

  • organization tips how to set up your database

  • outsourcing not just for big business

  • overcoming barriers to sales

  • overcoming sales objections for small business networks

  • overcoming small business networks sales objections

  • part 1 of 5 how pipe dreams can become realities

  • part 1 of 5 on the home business set up guide

  • part 2 of 5 how pipe dreams can become realities

  • part 2 of 5 on the home business set up guide

  • part 3 of 5 how pipe dreams can become realities

  • part 4 of 5 how pipe dreams can become realities

  • part 5 of 5 how pipe dreams can become realities

  • paypal dedication can leave your business exposed

  • phone interviews prepare to ace them

  • phone tips to get things done professional phone skills

  • planning to make a decision

  • ppc management when to give up on a loser

  • profitable growth is everyones business a book summary

  • properties for sale in cyprus please visit www propertyincyprus com

  • pr where it matters most

  • public relations defining your organization from the inside out

  • results of poor cross cultural awareness

  • riding the sales rollercoaster

  • rotator

  • rý eoc recruitment and retention employer of choice

  • sales 201 learning tools of your trade

  • sales activity report for management

  • sales and marketing terminology

  • sales and the importance of following up

  • sales commission what return should you expect on your sales compensation investment

  • sales leads how to generate quality sales leads through public speaking

  • sales lessons from the election

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  • sales performance and motivation how to get your edge back

  • sales planning

  • sales process how to avoid wasting time on prospects who cant or wont pay

  • sales process the secret to closing more sales

  • sales process what can you automate

  • sales success the 5 steps

  • sales territory management how to prioritize your activities to produce maximum results

  • securing second and third round venture capital financing

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  • the 11 secrets to sales leadership

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  • trade show tactics revealed

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