From MarketingProfs.com’s Marketing Challenge: Gross Sales vs. Gross Profit:

Our star salesman is the best closer I’ve ever seen. He sells products and services. He’s paid a salary plus commission on gross sales. He does have some pricing latitude. I’ve noticed a fairly stable gross profit percentage on products, but it’s much different on service sales.

It looks like he’s “giving away” services to get more product sales. Service costs are somewhat vague and hard to accurately measure, but I need to grow the service side of our business profitably.

Should I switch his commission structure to a gross profit percentage on services?

In a word, yes. Gross profit is the most effective structure for sales commission plans. The hiccup is determining costs and their is a pitfall to avoid. If you have variable costs based on production or service delivery, it is best to establish an estimated cost for each sale.

Here is the issue – I worked for a LAN cabling company where I was paid on the gross margin of my deals. I designed the solutions, quoted the project and closed the deal. The problem was that some of the installers were quite liberal with their material usage. That is putting it nicely – one guy was assigning material costs to my job while moonlighting installations using that material. I didn’t know this at the time, I simply knew that the installation I had designed had plenty of extra material built into it.

My commission was crushed on a handful of big deals and slowly dissolved on smaller deals. The President finally stepped in after I toured a few job sites with the lead engineer and measured the amount of cable installed (well under the amount listed on the job completion sheet). Needless to say, I have never forgotten this issue.

This suggestion sums it up (emphasis mine):

Gross margin is the way to go. The trick is to define the cost of goods to drive the correct behavior that yields profit on the bottom line. The calculation to get this right requires a clear understanding of the end-to-end process that delivers the “product,” whether it is goods or services.

Comments(0)

You don’t have to read this, just look at it’s sheer girth:

Qualifications/Necessary Skills:
Attention to Detail.
Able to be alert in a high-risk environment; follow detailed procedures and ensure accuracy in documentation and data; concentrate on routine work details and organize and maintain a system of records.
Able to clearly present information through the spoken or written word; read and interpret complex information; talk with customers or clients; listens well.
Able to use a win-win approach to resolve controversy; stay objective and fair when dealing with sensitive situations; maintain constructive working relationships despite disagreement.
Able to take action in solving problems while exhibiting judgment and a realistic understanding of issues; able to use reason, even when dealing with emotional topics; review facts and weigh options.
Able to convince others in both positive and negative circumstances; use tact when expressing ideas or options; present new ideas to authority figures; adapt presentations to suit a particular audience; respond to objections successfully.
Able to be tactful, maintain confidences, and foster an ethical work environment; prevent inappropriate behavior by coworkers; give proper credit to others; handle all situations honestly.
Able to share due credit with coworkers; display enthusiasm and promote a friendly group working environment; work closely with other departments as necessary’ support group decisions and solicit options from coworkers; display team spirit.
Able to obtain agreement from multiple parties; earn trust while working out a deal; use good timing and carefully calculated strategies when bargaining; communicate high value of services; identify hidden agendas that might interfere with resolution of terms. Able to prepare for emerging customer needs; manage multiple projects; determine project urgency in a meaningful and practical way; use goals to guide actions and create detailed action plans; organize and schedule people and tasks.
Able to develop rapport with others and recognize their concerns and feelings; build and maintain long-term associations based on trust; help others.
History and track record of achievement of revenue objectives.
Demonstrated ability to identify and develop sales opportunities in new accounts. Demonstrated ability to develop and implement account plans.
Demonstrated ability to work with accounts€™ senior management and across functions within customer organizations to gain commitment, obtain resources and achieve desired results.
Excellent presentation skills.
Strong team building skills and ability to resolve conflict situations.
Superior professional presence and business acumen.

This excerpt is just part of a sales ad placed by a retained search firm. I realize that these firms often want to impress their customer by launching these Tolstoy-esque ads (think War and Peace). But this ad is actually a hindrance to successful sales hiring.

Sales revolves around the skill of qualifying. This ad puts far too much information into the sales candidates’ book. The sales hiring process should mirror certain aspects of a typical sale. By taking this approach, you are able to see the salesperson’s skills in action. A shorter ad that touches on the absolute requirements requires the sales candidates to ask questions…in other words qualify the position. Pay attention to their questions, observe their pattern and note their focus.

An ad of this length will elicit responses from detail-oriented, highly-compliant salespeople who work better with existing accounts than they do with developing new accounts. Obviously we have not profiled this sale, but the ad lists “developing sales opportunities” as one of the (many) requirements. I suspect they will uncover many sales candidates who sell by responding to RFP’s. And maybe that is the company’s sales model.

However, you do not need a retained search company to find RFP-responding salespeople. They are a dime a dozen.

Comments(0)