Sunday, May 24, 2009

Is Your Sales Commission Plan Working Against You?

I was recently speaking with an association publisher who told me that she was considering replacing the advertising representative firm she had been using with another. As we got into more detail, she revealed that the firm had been successful in building and maintaining her organization’s print advertising business, but had not been successful in building her online advertising and that she felt that a company with more experience in selling electronic advertising might better assure that her total revenue goals were achieved. Then we discussed her goals and the structure of her relationship with her current sales organization.

Like most advertising representative relationships, this association was paying the firm 20% of net revenues. I asked what her average page rate was and she revealed that it was $8000. When asked what the rate was for an online ad, she indicated that it was $2000. Then I asked her to do the math: 20% of $8000 = $1600; 20% of $2000 = $400. Where did she think her commissioned sales team was focusing its efforts? On the sale that would generate for them the highest commission. I then suggested that she do something radical: Continue to pay the current firm a commission of 20% on print products, but increase the commission on electronic products to 50% (yes, 50%). Look what happens when you recalculate the math: The firm still earns $1600 on the sale of a print ad, but now earns $1000 on the sale of a web ad. Suddenly, the sales staff sees there is a larger incentive to now sell web advertising. The problem was never with the quality of the firm’s work, only with the structure of their compensation program. And isn’t that association better off keeping 50% of $2000 rather than 80% of $0?

The truth is that the traditional 20% commission is figured as part of the overall cost of producing a print product. Those costs include printing, postage, paper, etc. and the profit margin on an ad is relatively small (depending on where the ad is placed and the imposition planning). However, the profit margin on a web ad is much different. There are little if any direct production costs, so even paying a commission of 50% on an electronic ad should still generate a profit from the sale of that ad.

A sales compensation program should be a tactical management tool that drives the sales staff to deliver the results you want. Want new advertisers? Pay a higher commission on new business than you do on the renewal of existing business. Want to attract a new category of advertisers? Pay a higher commission on ads sold to companies from that group. Want to cross-sell multiple products such as print, web, and face-to-face? Pay a bonus commission when a multi-media package is sold. Do you have per-issue revenue goals? Pay a bonus when those goals are exceeded, or pay a smaller commission until those goals are achieved. Use the structure of your compensation program to incentify your sales staff to deliver the results you want. Commission plans are owned by the publisher and should be used to reward the sales staff for meeting your goals and objectives. Like it or not, sales people are motivated by money and they go where the money is. Put that motivating force to work for you rather than against you. Your revenues will increase and your goals will more easily be achieved.

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