Question:
How do you switch from paying your sales people based on the sale to paying them based on the collection of the sale?
Answer:
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 go to https://www.thesalesresourcecenter.com/kahles-kalculation-sales-productivity-measurement/, and download a free document called Kahle’s Kalculation, which 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.
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 to happen.
Now, the question for that small group is “How can we help?” Think of the word “transition.” You may want to advance a temporary draw, to be paid back out of earnings later. Take our example from above – the $5,000 sales person. You decide to advance him $700 the first month, and $200 the second month, to help him over the hump. You decide to set up a repayment plan of $100 a month for months 5 through 14.
Another option is to just count the transition as salary, and not ask for it back. Think of it as grace extended to the sales person. He hasn’t earned it, but you’ve decided to advance it because you think so highly of his/her contribution and potential.
One last tip. When you communicate the change to the sales people, print those spreadsheets that you created. Hand each sales person their own spreadsheet so that they can see what you expect the impact to be. This will go a long way to assuring them that you have been thorough, methodical and sensitive to their situation.
Before they leave the meeting in which you communicate the change, sit down one-on-one with each of the sales people who you want to transition, and show them your transition plan for them.
While this approach will take some time, the paybacks will be worth it. You’ll gain respect from the sales people for the time and attention you gave to this issue. You’ll dramatically reduce the negative fallout of a change in their compensation, and you’ll send a message to your good performers that you value them.
