I encounter cases where management feels the need to reduce overall marketing costs. Our chaotic economic environment adds to expense-cutting pressure. Sure, there are ways to defer or reduce marketing costs to respond to short-term imperatives, but monkeying with long-standing sales compensation plans can be very dangerous.
A really stupid move is to reduce the earning capacity of individual salespeople at a time when retaining customers and acquiring new customers is critical. Unfortunately, there is much sales mismanagement around today.
One move, often employed, is changing existing sales compensation plans to reduce commissions or bonuses. Generally, this means that salespeople must work just as hard…or harder, and produce more sales, then take home significantly less pay in the process!
Such a move is stupid because it penalizes all salespeople, especially top producers. Top producers with enviable sales records have options. What is the result? They begin to search for other job opportunities with firms who place a higher value on their work. Employers who reduce sales compensation (or dramatically increase quotas) may avoid paying commissions or bonuses, but they end up losing their best salespeople, retaining only those who produce mediocre results.
It behooves sales management to exercise extreme care when fashioning a sales compensation system. Once the system is in place, reducing that plan to curtail the amount that a top salesperson can make will have a negative effect on turnover and future sales results.
Six Moves to Consider When Business Slows
By Richard P. Morgan CMC, FIMC
Copyright 2008
The time to take the measure of your management’s capability is when business slows, not when everything is booming. Slowdowns often disclose earlier management ‘sins’ that require immediate correction to prevent a loss of profitability.
Economists predict a slowdown from the economic pace experienced in 2008, so here are six moves to consider that could help keep you profitable should the business slowdown occur.
1. Analyze your current clients. Find ways to show clients that you appreciate their business. Stay closer to your top clients and look for opportunities to serve them with additional products and services.
2. Watch your margins. Review your pricing strategy and keep up with supplier increases. Work with key suppliers. Consider consolidating purchases if you can negotiate a better deal or improve terms.
3. Monitor employee productivity. People are a large fixed expense category. Divide your total personnel cost by total revenue to find your sales per employee. Divide your total personnel cost by total gross margin to find your gross contribution per employee. Reduce or eliminate overtime hours. Look for ways to eliminate outmoded or unnecessary activities and redeploy personnel to maximize effectiveness.
4. Avoid reducing marketing and sales effort. Business slowdowns often cause competitors to pull in their horns. You may gain significant new business by maintaining effective marketing and sales activities when others pull back. New accounts can help offset revenue loss from current customer attrition that usually takes place. Be sure to tie sales incentive compensation to gross profit contributions.
5. Watch cash flow and working capital like a hawk. Tighten up on serious past due accounts. Take a physical inventory and identify obsolete and slow-moving stock to dispose of at a discount. Avoid buying when the item is already in stock.
6. Review significant fixed costs. Request competitive insurance quotes for property and casualty, and general liability. Eliminate duplicate coverage. Get a reliable second opinion on employee benefit plans. Check utility rates and consider changing electricity suppliers if significant savings are possible. Consider reducing or eliminating some owner and management extras added during boom times.
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Richard P. Morgan CMC, FIMC (Certified Management Consultant)
Morgan Marketing Solutions, Inc.
rpmorgan@morganmarketingsolutions.com
Vox 972-931-7993 We help leaders become better marketers
Fax 972-931-0542 using a holistic business approach!
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