As the economy stays stalled longer and longer, reps increasingly find themselves in the crosshairs of manufacturers looking for ways to cut costs. In some cases those cost-cutting goals have trumped fairness and excellent reps face unilateral cuts in commission or unwarranted conversion of hard-earned customers into house accounts. This month’s Agency Sales looks at sales commission erosion.
By the time a manufacturer announces a commission cut or new house account, the decision usually has been made and the rep gets a take-it-or-leave-it ultimatum. So how can a rep company protect itself from these kinds of losses? One rep’s solution was to preemptively promote and prove his company’s value proposition to his principal.
“We have almost a decade-long relationship with one of our principals, and I have always made it a policy to be in regular contact with that principal so they knew exactly what we were doing on their behalf. About a year ago, their regular-as-clockwork commission check was late. They had been on time for so long that I assumed it was an oversight and that the check would come soon, so I didn’t call them until the check was 10 days late.
“When I called they were very apologetic and agreed to rush me a check, but the reason for the late check was a little jarring. ‘Sorry that your check is late. What happened is that we took a look at the value we were getting from all of our reps and realized that the only rep we were getting any value from was you. So last month we fired all of our reps except you. The accounting department didn’t realize we still had one rep left so they didn’t make a commission check run this month.’
“On one hand, I was flattered that my consistent message about my company’s value proposition was received loud and clear. But on the other hand, I couldn’t help but wonder what had happened to all the other reps who had represented that line. They couldn’t all have deserved to be fired. I couldn’t have been the only rep worth keeping, but apparently I was the only rep who had consistently communicated my long-term value proposition. And because I was the only rep they knew brought value, I was the only one they kept.”
So many reps fired at once is an extreme example, but it could just as easily apply to a situation where a manufacturer is considering a commission cut or adding house accounts. Your best defense is to proactively communicate to each of your principals your rep company’s value proposition, so if any of those manufacturers start to look for ways to achieve cost reductions at the expense of its reps, your company will stay out of the crosshairs.
Commissions as we know them in the sales business are the payment we receive from a principal for conducting business with their products to our customers.
Many manufacturers have a hard time understanding a sales commission arrangement because the people that manage the company are paid on a salary that is a guaranteed amount of money paid to them on a regular basis. Commissions are variable. If we don’t sell anything, we get paid nothing. If we sell a lot, we get paid a lot.
In our current economic times, many manufacturers have to scale back their operations to … Read the rest
If it’s possible to gather a group of independent manufacturers’ reps and charge them with the task of discussing the state of commissions today, chances are any discussion will closely resemble talks that may have occurred, 10, 15, 20 years or more in the past. Typically they’ll say:
- “There’s more pressure on our commissions today than ever before.”
- “Manufacturers are asking us to perform more of the tasks they’ve typically performed — all with no increase in commission.”
- “If we approach a principal to present our argument for an increase in commissions, anything we say is met with deaf ears.”
… Read the rest
When change is forced upon you, making the shift is often more stressful and more difficult than when you thoughtfully decide to take your organization in a new direction. After all, making a change that you plan for is exciting and filled with opportunity, while making a change as the result of outside forces putting pressure on you is filled with risk and unpredictability.
Unfortunately, most organizations resist these externally mandated changes and are slow to respond. They fear the risk involved, and as a result they miss many opportunities. Change under external circumstances is scary because you often don’t … Read the rest
Those that refer to the traditional sales approach of “Are you a farmer or are you a hunter?” have fallen behind with this old concept or approach.It also indicates the individual’s lack of skills and expertise that are needed for business development especially in this new global business environment.
The farmer approach or mentality refers to those who like to nurture customers and clients with customer service and tending to their needs. This is their main skill and personal comfort zone.
Sometimes it can be taken to the extreme, earning the bad reference, ‘Are you just an order taker?’… Read the rest
Every customer has a price range where they are willing to make a decision without any further thinking. I refer to this as the Price Tolerance Ratio — also known as the PTR.
Knowing your customer’s PTR is critical. I believe it is one of the major obstacles salespeople fail to comprehend. As a salesperson, when you don’t understand a customer’s PTR, at least one of the following results is inevitable:
• You offer a price that does not maximize the profit potential.
• You get the order but encounter resistance from the customer that hinders the relationship.
• … Read the rest
Think of a problem you’re trying to solve:
• Maybe you want to get raises for your team members.
• Perhaps you have a dispute with the IRS.
• Maybe you are the CEO who needs a legislator to vote for a bill that enables your company to expand into new markets.
• Maybe you want that “plum” job.
In these situations, no matter what your title or reputation, you’re not involved in an equal partnership. You’re the underdog. If you’re the team leader, you’re the underdog to your boss. If you’re the taxpayer, you’re the underdog to the … Read the rest
The IRS has recently announced that the mileage rate for automobiles has been increased from 51 cents per mile to 55.5 cents per mile for the six months that began July 1, 2011, and ends December 31, 2011. This rule applies to those taxpayers who use the business mileage allowance instead of the actual costs of operating a business auto. These costs include depreciation, gasoline, insurance and all repairs and maintenance. The only allowed additional costs to mileage are tolls and parking. The increase seems reasonable. Assuming that gas has increased in price about 60 cents per gallon, if … Read the rest
When our generation was growing up, we were taught about Social Security, and many of us had grandparents who were reasonably comfortable with a combination of their investment income and their government checks.
Today, not so much.
Over the last few years, we have seen the market crash and burn, and Social Security is on its way toward doing the same. So, if we’re scrambling to salvage our retirement income, imagine what it will be like for your kids. If you haven’t done that already, here is some good news for you.
When we were just starting out … Read the rest