Tag Archives: compensation

Guerrilla Selling – How Performance-based Compensation Drives Sales Through the Roof

How to Manage and Motivate Your Sales Team

Any behavior which gets rewarded will tend to be repeated. So we advocate paying close attention to how employees are rewarded for performing (or not performing) the various aspects of their jobs.

Performance-based compensation is nothing new. Commission plans for salespeople are common because their productivity is so easy to measure. But small business tends to eschew these compensation plans thinking that “we’re just a mom & pop store. We’re different.” In the competitive environment you’re faced with today, you have no choice. You must use every management tool available to maximize your marketing firepower.

Guerrillas are not only intolerant of non-performers, they lavishly reward their stars, setting ever-higher standards for the whole organization. The problem is how to reward your people appropriately, particularly if they’re not directly responsible for easy-to-measure activities like sales revenue. Some simple guidelines can put this powerful management tool to work for you.

The foundation of an effective performance-based compensation plan is a set of clear and specific goals for your organization as a whole, for each functional department, and for each individual employee. These goals must be objective and quantifiable. For example, “Increase walk-in traffic by ten percent, or to 650 shoppers per month, by the end of the year” or “achieve an average rating of 4.5 of 5 on monthly customer satisfaction surveys.” Subjective factors, like attitude or good work habits might be included in review criteria, but if you can’t measure them statistically, you can’t use them as a standard for performance-based compensation. Then devise methods for gathering data to measure progress (or lack of it) toward these goals. What you measure is what you get, so inspect what you expect.

Salary
The advantage is that it’s easy to calculate: punch in, punch out, so much per hour. The disadvantage is that it doesn’t motivate.

Commission
Commissions can be computed on the gross sale price (good), or the gross profit margin (better). One important factor to consider when designing a compensation plan is that it must be simple. Paying commissions on straight gross sales is easy, and if you put the table below up on the wall in the break room, everyone can quickly estimate what they’re earning if they know the overall gross margin of the store.

Do not pay commission on any gross margins below 13%. If they’re selling at less than 13% margin, they’re giving away the stock and putting you out of business.

Generally, the lower the gross margin, the easier the product is to sell. So guerrillas recommend paying commissions based on gross margin, to reward your sales people for working harder to maintain higher profits, not just sales.

Commission Based on Gross Sales:

Overall Gross Margin % of Gross Sales
on Sales for the Month Paid as Commission

All above 27%…………………………………………… 2.8%
26.0 – 26.99……………………………………………… 2.6
25.0 – 25.99……………………………………………… 2.4
24.0 – 24.99……………………………………………… 2.2
23.0 – 23.99……………………………………………… 2.0
22.0 – 22.99……………………………………………… 1.9
21.0 – 21.99……………………………………………… 1.8
20.0 – 20.99……………………………………………… 1.7
19.0 – 19.99……………………………………………… 1.6
18.0 – 18.99……………………………………………… 1.5
17.0 – 17.99……………………………………………… 1.4
16.0 – 16.99……………………………………………… 1.3
15.0 – 15.99……………………………………………… 1.2
14.0 – 14.99……………………………………………… 1.1
13.0 – 13.99……………………………………………… 1.0
Less than 13.0%………………………………………… none

Basing commissions on gross margin rather than gross sales is harder to track, but it motivates salespeople to sell higher-priced and higher-profit items, accessories and extended service contracts, as well as to follow up with prospects and customers for referrals.

Commission based on gross profit discourages discounting. It can also produce competitive rivalries between salespeople, (which is not necessarily a bad thing).

Commission based on Gross Margin:

Overall Gross Margin % of Gross Profit
on Sales for the Month Paid as Commission

All above 27%…………………………………………… 15.5%
26.0 – 26.99……………………………………………… 15.0
25.0 – 25.99……………………………………………… 14.5
24.0 – 24.99……………………………………………… 14.0
23.0 – 23.99……………………………………………… 13.5
22.0 – 22.99……………………………………………… 13.0
21.0 – 21.99……………………………………………… 12.5
20.0 – 20.99……………………………………………… 12.0
19.0 – 19.99……………………………………………… 11.5
18.0 – 18.99……………………………………………… 11.0
17.0 – 17.99……………………………………………… 10.5
16.0 – 16.99……………………………………………… 10.0
Less than 16.0%…………………………………………… none

Of course, you have to adjust these percentages to your business and your market.

Bonus
Bonuses can be paid on a monthly sales quota, or on reaching a target profit margin. The whole sales team can qualify for a bonus for reaching a collective goal. Managers often receive a bonus for exceeding key performance targets. Some retailers offer year-end bonuses, but these are not really very motivating. Bonuses are more effective if they cover shorter cycles. People need to be able to envision their progress, either on a regular report, a reader board, or a United-Way-style thermometer.

Spiffs
An acronym for “sales promotional incentive funds,” spiffs are paid for specific sales events. Some spiffs are funded by manufacturers to move specific SKUs. Or they can be paid by the store for selling an unwanted, obsolete or damaged item.

Guerrillas never allow the manufacturer to pay spiffs directly to their salespeople because you want the credit for paying the reward. Also, you don’t want the manufacturers to control what products sell on your floor. You need to manage that mix based on your niche, your identity and your business model.

Sales Contests
It’s important to include all the support people, the back office, the warehouse, cashiers and delivery.

You can run a sales contest on any number of metrics. First Sale of the day, Biggest Ticket of the day, Most Line Items in an order, Most Orders written in a day, Order with Highest Gross Margin.

You can also run contests on product knowledge. Devise a simple test and give a certain sum for every question they get right.

The best sales contests combine performance with an element of chance. For example, every qualifying sale wins a ticket dropped into the hat, then a weekly drawing determines the winner of a cash prize, a merchandise prize, or the trip for two to Hawaii. The more you sell, the better your odds of winning.

An effective variation is every qualifying sale gets to draw a playing card from a deck. The best poker hand at the end of the contest wins all.

Wiltshire TV, in Thousand Oaks, California, has developed an unusual variant of Bingo. Welcome to Bay Area Bingo! Each month, each square on the bingo is assigned a different product. Instead of letters and numbers, their Bingo card is laid out with brands across the top and model numbers down the side. Sell a qualifying product and you mark that square on the card. Sell any five qualifying items in a row, and BINGO!

LOTS more Guerrilla Retailing strategies in our book, Guerrilla Retailing – How to Make Big Profits from your Retail Business. Order it today on Amazon.


Guerilla Retailing – Where Everyone is Above Average

How to Get Above Average Performance from Everyone

by Guerrilla Selling Speaker Orvel Ray Wilson, CSP

How would you like to see a 10% sales lift on a $10 investment? Start by making individual production public.

Go to the office supply and buy a white dry-erase marker board, a set of colored markers, and a couple of rolls of black border tape (that skinny, vinyl tape used for making lines on your whiteboard).

Use the border tape to divide the whiteboard into 9 columns.

The first column is NAME, then a column for each of the seven days of the week, and a column on the right for TOTAL. Now create a line for each salesperson.

Hang it on the wall in the warehouse, break-room or back office where everyone (except customers) will see it.

Each day, require each of your sales associates to write their sales figures for the day in the appropriate box before they go home. A blank indicates that they were not in the store that day. You may have to enforce the rule at first; if they skip (or just forget) fine them a dollar for the coffee kitty. But soon, everyone will be eager to play the game.

This works on several levels. First, your stars will set the pace for the rest of team, because salespeople are genetically competitive. That alone will increase their overall sales performance by the promised ten percent. Great sales trainers and coaches capitalize on that trait to help team members improve their skills.

It will also make everyone more consistent, because no one wants to post a zero for the day. And nobody wants to be consistently in last place, so they will work to improve their product knowledge and sales skills. And that one person you have on your team who you wish you hadn’t hired? After a few weeks he’ll get the message and leave on his own.

Raising the Bar

You can produce even more dramatic results by tracking all of the associates’ performance on three key performance indicators. At end of the month, calculate their total sales volume, their average ticket amount and their gross margin, then compute the overall averages for each variable across the store, and compare each associate’s performance to the average.

Post the results, or print them in a spreadsheet to hand out, for example:

Associate
Total Sales Volume
Number of Transactions
Gross Margin %
Jeannie
$16,550.00
25
31.1%
Ted
$20,196.00
26
30.2%
Aaron
$24,952.00
30
29.3%
Chris
$19,252.00
32
32.1%
Pat
$22,532.00
31
34.9%
Michelle
$21,036.00
25
26.0%
Ryan
$26,382.00
19
31.0%
Average
$21,557.14
26.9
30.7%

Table 1

Congratulate those who beat the norm, then meet individually with each associate to discuss his or her individual performance. “You’re doing a good job over all, and I noticed that last month, you were above average on (parameters) while your (parameter) was just a little bit below the average. Why do you think that was? How could we work together to help get you up to the average (on this parameter)?”

This is a highly motivating combination. Nobody wants to perform “below average,” but suggesting that you just expect them to work up to the norm will always be perceived as reasonable and achievable. It should be easy enough. After all, you’re not asking a low performer to shatter any records, just to improve in one specific area enough to make the middle ground.

In the example above, the average sales volume per associate for the month was $21,557.14. So you might take Ted aside and ask him to suggest ways that he might sell an additional $1,300 this month. After all, he only needs $1,300 to get up to the average.

You’d have the same conversation with Jeannie, Chris and Michelle, and suggest ways that they could increase their overall sales. Maybe they just need to put in more hours, or take a Sunday shift or two. Perhaps they need to pay closer attention to customers when they’re in the store, or be more proactive about suggesting companion products or accessories. Perhaps you can coach them on effectively handling more than one customer at a time.

In the same example, the average number of sales per associate was 26.9, but Jeannie, Ted, Michelle and Ryan all fell below that average. You can talk to them about qualifying customers more carefully, or help them improve their closing skills. They only need to close a few more sales next month to move into “above average” territory.

Similarly, while the average gross margin was 30.7%, Ryan, Pat, Chris and Jeannie made above-average profits, while Ted, Aaron, Linda and Ryan were below the bar. Perhaps they’re over-emphasizing sale merchandise. You might coach them on up-selling to full-feature products, or adding high-margin accessories. Or show the best first. After all, they only need to cross-sell or up-sell every now and then to be above the average.

From time to time, you can change the parameters to help associates improve in other areas such as closing ratios, total accessories sold or extended warranty penetration.

Very quickly, you’ll find that the averages start to climb, as each associate gets exactly the coaching they need from month to month to improve their most critical skills.

To learn how we can help you built a top-performing guerrilla sales team, or to order your own copy of Guerrilla Retailing, call us toll-free 800-247-9145.

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