Playing Offense: Investing in a Down Time

There is much talk these days about the defensive strategy of cutting, and it is necessary when you are on the rack financially. In fact, cut every big lump of fat you can excise, especially in the areas of bad people, materials (or unnecessary services), and indirect labor. But you do have to play some offense too. You have to invest. You need a growth strategy that runs parallel to and reduction—getting leaner—strategy. If you don’t, you will simply continue to shrink your operation until it disappears.

More particularly, you want to take some of those savings and invest it in generating good sales. That can take a variety of forms. It may mean bringing on a new salesperson. If however, your closing rate is high but your leads are low, you may want to put a few dollars into marketing. You may even look at some technology that will assure you of extra good sales. The only principle to follow is that you want to put your money into people, services, or equipment that will directly generate more revenue.

In any case, you have got to play offense. Good basketball teams play well on both sides of the court and you have to do the same business. Tighten your financial defense by grinding down your costs while taking some of your savings to build a better offense, a strong sales base.

Compensation

I have no idea how many times I have been asked, “What is the right compensation system?” The answer to that one is none. There is no one perfect way to compensate salespeople, even within industries. Every company is different and your system has to work for you and your salespeople. If it is a loser at either end, you will lose.

That said, however, one principle looms large. You always want to make your compensation as commission-based as possible. This is not to say your people don’t get a set amount every pay period, just make certain it is not an amount greater than what a commissioned number might be.

For example, if you have a product or service in which about 10 percent of the price goes back to compensating the salesperson, you want her pay period amount to be slightly lower than 10 percent of her actual volume. Here is what I mean. Say Marie brings in about $960,000 in sales each year. That is her scoring average. Ten percent of that is $96,000. Now divide that by 12 and you have $8,000 per month. What you don’t do is pay Maria 8,000 a month, because if at any point she hits a slump you have overpaid her and she is in debt to you. If Maria is quite consistent, I might pay her $6,600 a month and settle the difference between that amount and her actual earned commissions quarterly.

If you have your people on salary, I strongly recommend that you try to move them in a commission direction. You may not be able to do so immediately, but you can start by shifting from a flat salary to a salary plus bonus. Salespeople will often be a bit threatened by this initially, but in the big picture you have to do this.

If you have a dud, some order-taker who is grossly overpaid for his sales, then you have only two choices. You can declare financial exigency and get rid of him, or you can tell him he needs to reach X volume in sales to avoid having his salary cut. The simple reality is this: Good salespeople prefer working on commission. They have enough business knowledge and professional self-confidence that they would rather take the risk of making big money rather than settling for security in the form of a smaller paycheck.

Look carefully at your sales compensation structure. There is almost no end to the creative possibilities that may lie before you. For example, rather than raising a salesperson’s salary as she improves her sales, you could give her a healthy bonus for every sale after X amount booked in a given month. It would offer her an incentive to drive up your sales numbers in a month in which the fixed nut is already cracked and you can really cash in on the volume=profit principle.