Tag Archives: Commissions

How Do You Improve Infrastructure to Manage Cash Flow? Seven Points

Situation: A CEO wants to improve management of his company’s cash flow. While this is particularly important during times of tight cash and rapidly changing market conditions, the CEO wants to know what others focus on when monitoring cash flow in their companies. How do you improve infrastructure to manage cash flow?

Advice from the CEOs:

  • Track project mix and margin contribution both in part and in total. To accomplish this estimate relative contribution margins of different project types.
  • Adjust sales targets and commissions to emphasize projects with higher contribution.
  • Segment the company’s business model by margins, overhead, and cash flow. Set targets and drive focus on profit per “X” (selecting the proper indicators).
  • Analyze contribution per direct cost factor, for example per engineer on payroll.
  • Develop detailed cash budgets on a monthly or even weekly basis when times are uncertain. For example, inflows and outflows by major category tracking actual cash receipt or disbursement.
  • Start with broad projections, and refine the analysis over time as the company better understands the factors that drive cash flow and profitability.
  • As understanding improves, formulate value propositions for salespeople which reflect the most advantageous cash flow contributors of the business.

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Where Can I Find a Good Salesperson? Five Suggestions

Situation: The Company wants to expand its sales force by adding “diamonds in the rough” – hungry individuals motivated by a high commission/low salary opportunity with high total compensation potential. How can they find these individuals?

Advice from the CEOs:

  • Hire “out of school” and use a good sales assessment tool to evaluate which candidates have the right attitude and skill set to succeed. Create a career path through a lower paid inside sales position to eventual higher paid outside sales position while the individual gets up to speed understanding your technology and as they develop sales skills. This helps to generate revenue to cover costs while developing new sales candidates.
  • Accept that you will likely experience turnover hiring candidates out of school. High commission sales forces in other industries deal with 85% turnover over 3 years to find “keepers.” This may be a significantly higher level of turn-over than you are used to in other positions.
  • Look to sales job fairs and Craig’s List for candidates.
  • Give your current sales people a bonus for referring friends or acquaintances who will stay with you for 6 or 12 months. Pay out theses bonuses over times.
  • Find a good sales recruiter to find experienced high-producers in industries with a similar product sale.
    • The appeal to these individuals is a high earnings opportunity combined with the chance to sell a sexy product.
    • Because these people will already be high earners, you may have to create a draw system so that they do not have to make too great an earnings sacrifice by switching to your Company.

Key Words: Sales, Hiring, Training, Commissions, Referrals, Bonuses  [like]

How do You Pay Sales Reps? Two Examples

Situation: The Company is considering two options to pay sales people – base/draw plus commission, or no base/draw and larger commission. What do other CEOs find most successful?

Advice from the CEOs:

  • Align your sales incentive plans to your company objectives. Two examples, one of an aligned system and one of a dysfunctional system:
    • Aligned System
      • Sales reps are 100% commission (including expenses) with no caps on income. They are measured by two sets of metrics.
      • To keep their jobs, they have to achieve a minimum of 85% of their revenue goal. Fall below this and out the door.
      • However, commissions are calculated on the gross profit achieved on sales, and reps are provided with software to calculate GP and commission.
      • This company is the most successful in its market.
    • Dysfunctional System
      • Sales reps are paid a base plus quarterly commissions calculated on achievement of revenue goals.
      • The net result was that reps had no incentive to preserve gross margins.
      • The result was constant conflict between sales and finance; the situation only started to improve as reps’ commissions were converted to a combination of revenue and margin.
  • Issue: what is the role of the rep within the sale?
    • Is the rep a door opener or a closer?
    • What percentage of the close is attributable to the rep?
    • In a complex or staged sale, allocate commissions based on contribution to the close. Reps who can’t close are not as valuable as those who can.

Key Words: Sales, Commissions, Commission Plans, Objectives, Alignment  [like]