Tag Archives: performance-based

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.