BFL&S talks to distributors about being compensated for their contributions to the value chain.
Forget religion and politics. Money is the subject for stirring things up, especially when salesmanship is the source of that money.
Consider the reader response to Editorial Director Bill Drennan's editorial in the April issue of BFL&S, which looked at Landy Chase's views on the questionable contributions of seasoned sales professionals. Comments ranged from relief that it was being addressed to outrage that it was even an issue. This is proof that sales is an elusive and hard-to-define craft. Not surprisingly, deciding how to compensate for the skill is not so cut and dried.
BFL&S's annual compensation survey showed that anywhere from 7 percent to 60 percent of annual revenue was spent on compensating sales representatives. And while 401K programs were by far the preferred retirement package, profit-sharing and Employee Stock Ownership Plan (ESOP) programs were also popular and typically offered in conjunction with a 401K.
Here, six distributors offer their opinions on compensation-related issues. Meet the players:
• Bryna Blum, WCBS/E.H. Bickett & Company, Palm Desert, Calif.
• George Crump, CEO, FRI Resources, St. Louis.
• Steve Donovan, owner, South Shore Business Checks & Systems, Hanover, Mass.
• Chip Grayson, president, SBF, Savannah, Ga.
• Harry Fuller, sales representative, Plateau Printing, Oak Hill, W. Va.
• Matthew Ragusa, account executive, PAR Global Resources, Santa Clara, Calif.
Issue 1: Compensation
Grayson: We offer our salespeople a percentage of commission because they work harder that way. If a certain amount of money is guaranteed and salespeople leave the office, you don't know if they are working or not.
Crump: We use a draw against commission, which means we're basically on a commission-only plan. Draw merely means there is a predetermined amount of money the salespeople receive on a regular basis. We designed the draw at about 80 percent or 90 percent of the salespeople's earnings.
Blum: Compensation should be considered individually since people's situations and work habits differ. For instance, some reps bring in their orders, period. Others bring in their orders and do their paperwork, and they deserve more of a 50/50 split.
Ragusa: I receive a draw against commission. It's a straight 50/50 split with no sliding scale. When business is steady, straight commission is OK. But in this economy, it gets tricky. I pay all of my own expenses when traveling and dinner is on me.
Fuller: I'm on a commission plus draw, which has gone up two or three times because I maintain my sales. I have a company vehicle and all expenses are paid. Interestingly, there was a survey in Newsweek a few years ago indicating that a sense of accomplishment, job security and benefits were the top three reasons someone takes a job. Money was number four.
Issue 2: Benefits
Grayson: We have a 401K, but we do not offer a company car or any other benefits. As far as flex time goes, if salespeople want to go to the beach, they can.
Crump: We have a 401K plan, but we're also an ESOP company. Effectively, this is a plan where the employees end up owning a significant part of the company in lieu of a profit-sharing plan or large contributions to their 401Ks.
Blum: Benefits are more important when a person is being paid a salary. Independent contractors really don't care about them.
Issue 3: Achieving predetermined goals through the compensation package
Grayson: We do not get into that too much because I own the company and write about three- fifths of the business, so it isn't necessary.
Crump: Teamwork is something we desire so we set up our plan so that our sales assistants actually share in the commissions and the success of our salespeople. Also, because we look for long-term, full-service accounts that occasionally require more than just one salesperson, we pay commissions based on net gross margin. If two salespeople bring in the same money from two different accounts but the company struggles to service one, this plan takes that into account.
Issue 4: Employee evaluations
Grayson: I evaluate salespeople based on their competitive fire. For salespeople with competitive spirits, a new product tends to make them aggressive and want to sell. But with complacent salespeople you could give them 1,000 new ideas and they would not do anything with them.
Ragusa: Casual, group sales meetings are held weekly. I'm evaluated based on my numbers from month to month as well as the profit level—say $1 million at 10 percent vs. 15 percent or 20 percent—at which the accounts are sold.
Donovan: Unfortunately, most salespeople are rewarded for doing the same things over and over again and are not recognized for being innovative. There are a lot of salespeople who simply stick to the laundry list, and their customers don't know other products are available. Evaluations should monitor how effectively new products are being introduced into the accounts. This is what helps customers grow their businesses—and distributors maintain their accounts-counts.
Fuller: I have lots of freedom. There are no reports or sales meetings. My boss says as long as what I'm doing works, I should keep doing it. However, if a salesperson is bringing in little accounts, it's important to know why they are small accounts. Is that really all the customer is buying, or is the customer just throwing that person a bone and placing larger orders with another vendor? Or, is the salesperson only putting in a four-hour day?
Issue 5: Hiring
Grayson: When I hire salespeople I want to have the feeling that they come across well to other people. I look to see if they can adapt to a situation easily. I also look to see if they are selling themselves because, basically, the interview is a cold call.
Crump: We look for experience and expertise along with other basic skills. We like to have specialists in digital design, direct mail, commercial printing and forms and labels, so that's what we go for.
Blum: Direct industry experience is not as important as whether or not the salesperson has enough empathy to service the account thoroughly. I'm more interested in someone willing to learn what the client does in order to learn what is needed. Someone who can hear what a customer says and can think through the process is ideal.
Donovan: Good salesmanship is an elusive quality. The best salesperson I ever had previously sold a press roller that became obsolete. He was an old guy with bad knees who couldn't walk well, but he had bigger numbers and more sales than anyone else. .
Fuller: Deciding who to hire is like fielding a baseball team—it depends on what the company or team needs. Either take the 22-year-old who shows future promise or the 38-year-old who can make a difference now. Basically, salespeople need perseverance, stamina and the ability to handle rejection.
Issue 6: Development, training & retention
Grayson: We have very little turnover because we tend to overcompensate our employees. You get more loyal employees that way. I believe in company loyalty and I want my employees to remain loyal and stand by me.
Donovan: I periodically listen to tapes from sales seminars. As for obtaining my CFC, I have no interest in doing so. Customers don't even know what it is.
Ragusa: I haven't received any formal sales training, but I've been fortunate enough to work with seasoned sales reps who are open to networking, and I've learned a lot that way.
Issue 7: Non-compete agreements
Grayson: We use a non-compete agreement. It is actually a non-compete and a confidentiality agreement sewn into one contract. The contract stipulates that the salespeople must leave the accounts alone for one year, and it also specifies which counties apply to the agreement. It covers about a 150-mile radius.
Crump: We use a non-compete agreement that is based on a time period and a distance radius—one year and a 50- or 100-mile radius. We are not trying to keep salespeople from earning a living in printing, but instead are saying if they are going to change companies then they should stay out of our accounts.
Donovan: I don't think non-compete agreements are necessarily fair when they keep someone from selling what they know how to sell in their own area. But they are fair when the concern is customers that were developed while the salesperson was being paid by the distributorship. Nevertheless, the term should not exceed one year.
Ragusa: I don't have a non-compete with this job or my previous employers, although I did have to sign one with Moore, which is fairly standard practice among major directs.
Issue 8: Account ownership
Grayson: The company owns the account. But we have not had any problems.
Crump: The company owns the account. But I've got more than a non-compete in place and that is because the key people become partners through the ESOP program, so their money and livelihood are at stake. It is better than a non-compete.
Donovan: Our salespeople own their accounts in a psychological sense—it's all about relationships and learning the customers' workflow, as well as what they value. Of course, they will take their best customers with them when they leave, perhaps not right away, but within a year. Often, these customers are chucked into a house account and they don't get that same warm, fuzzy feeling they had with the original salesperson.
Ragusa: While customers will always tend to think of the salesperson as the company, account ownership depends on circumstances. For instance, accounts built around proprietary systems a company developed—say an online ordering system—clearly belong to the company. Otherwise, when salespeople are responsible for day-to-day account maintenance and development, they own the accounts.
Blum: It is essential to gain clarity on what is fair and equitable, and it is very natural for customers to follow sales reps when the reps move on to new companies. Customers should not have to accept management changes to their accounts if they are not happy with them. But there are sales reps who never bother to up-sell or cross-sell the accounts. Their customers call in and do not even ask for the reps, and the inside office staff winds up doing of all the paperwork. Whose to say who owns those accounts? And I'm not talking about your typical "play-it-agains"—I'm frequently changing artwork for these neglected accounts and even cross-selling them. Plus, it costs me postage to send proofs back and forth. What am I obligated to give back? If expenses need to be split, so should income. When a sales rep is apathetic to this income, you should have no obligation to pay it.
By Maggie DeWitt and Allan Martin Kemler