Situation / Scenario –
A specialty manufacturing company that was known as a sound operator of facilities faced a lack of new business generation, year over year. The sales team including sales management had developed a caretaker philosophy and a risk averse culture when it came to cultivating new customers. Sales representatives were fairly paid, but the focus had become retention of current customers rather than finding new ones.
Opportunities / Problems Identified –
Sales representatives were not incentivized to gain new customers. They were paid 100% as salaried employees pushing them to avoid cold calls and growing new customers. They predominantly spent their time and energy on “protecting” their existing portfolios.
Action Development –
A sales incentive team was developed consisting of sales management, HR, business analysis and company leadership to redefine and redevelop a sales inventive program that would reward both customer retention and new customer development. A program was eventually developed that allowed sales representatives to significantly grow their income by selling new customers. The program accounted for both ongoing sales (at a lower percent payout depending on business profitability) and new sales which generated a larger payout for a fixed period of time depending on overall account profitability.
Results Generated –
While overall sales compensation increased by 3.5% versus the baseline, new sales in the first year were up 8.0%. During the second year of the program, new sales increased by another 10.0%. Sales representatives saw their average income grow by 16% over the first two years of the program. Their income growth was completely funded by incremental new business. The sales team evolved into a two-tier effort where “hunters” looked for new business and realized the rewards of landing new accounts, while “farmers” took care of existing accounts and were rewarded for freeing up the valuable time of the “hunters” to close new business.
Bottom Line –
Sales grew by almost 19% over the first two years after the new program was introduced. The sales team suffered zero regrettable losses, while non-performing representatives self-selected out to pursue other opportunities. Bottom line earnings increased by 24% due to the new sales growth.