Three sticky issues — three simple solutions

Home Channel News, Dec 11, 2000 by Jack Nunn

Straight talk on fair compensation, commissions on bad debts and special order errors

Three issues that we have no doubt wrestled with are how to fairly compensate outside salespeople, the unfairness of commission payment on bad debts and how to reduce/control special order errors by outside sales personnel.

Let's examine three simple solutions to these oft-analyzed and sticky issues.

Outside Sales Compensation The absolute simplest program that emphasizes both sales and gross margin is that of paying 50 percent of the salesperson's blended gross margin percent multiplied by his or her generated gross profit dollars.

For example, if the salesperson's margin at the end of the month is 22 percent, you would pay 50 percent of the 22 percent, or 11 percent, of the salesperson's generated gross profit dollars.

The plan is that simple and assumes that the salesperson pays all expenses of territory management. Should you be providing a vehicle or other expenses, it would be necessary to scale back the compensation to an amount comparable to the expenses provided, i.e. 40 percent to 45 percent of the gross profit percent.

Collected Sales

Payment on invoiced, or collected, sales is perhaps the most arguable of the three issues, with opinions divided roughly 50-50.

Some feel strongly that credit is not the salesperson's responsibility, while others feel that a sale is not a sale until it rings in the register.

I am firmly on the side of payment on collected sales. The salesperson is the eyes and ears of your company, and things have a way of changing with customer accounts. We would never purposely open a bad account, but sometimes things go sour and the salesperson needs to have the motivation to protect your company's assets.

Are we making them collectors? Absolutely not! We are simply involving them in the process. Interestingly, those who have converted to collected sales say that it made their salespeople better business people and elevated them in the eyes of their customers. The sales/credit relationships will also be considerably enhanced.

Special Order Forms

Insisting or allowing outside sales personnel to place their own special orders diminishes their productivity, is error prone and potentially contributes to inadequate special-order margins. I prefer a single source to purchase and price special orders.

Even so, it is the outside salesperson's responsibility to ensure that what is needed is what is properly communicated and ordered. Charging back special order errors at zero cost and 100 percent selling price has numerous advantages.

First, it gets the attention of the sales staff. They share in a greater portion of the charge back. The error is also written out of your inventory immediately, and every commissioned salesperson wants to resell the product, which comes back at 100 percent gross profit.

Consider these simple solutions. Those that have tried them acknowledge that they work.

Jack Nunn is a professional trainer and consultant with 33 years of sales and sales management experience, including 17 years as owner and manager of his own lumberyard. He is past president of the GeorgiaAlabama Building Material Association and author of the book, "Managing for Profits."