How to Create a Powerful New Kind of Sales Incentive Plan

Welcome! Introductions Bruce Merrifield Randy MacLean Housekeeping 90 minutes profit drivers comp issues plan design Q & A WayPoint follow-up

What We’ll Cover Business profit dynamics Deficiencies in current comp practices Benefits of NBC compensation How to design a plan Plan mechanics How to transition

Vernacular

Factoids 2009 non-sales comp expenses cut by 17.6% 2009 sales comp dropped by 1.8% 2009 sales comp % GP up by 19.6% 2009 sales comp % NBC up by 20.8%

What WayPoint Does Secure online system Integrates 100% of company’s costs into invoice data each kind of cost is considered with its own rules each transaction line carries the burden of resources consumed top-down ―not activity-based-costing (ABC) Gives users ability to “slice & dice” High-accuracy, low-cost, low-maintenance … more later …

* screen from WayPoint What We Know… …we can use ranking reports to set priorities...

* screen from WayPoint What We Know… … we can see where profits come and go...

* screen from WayPoint What We Know… … we can see & manage net profit in detail…

* screen from WayPoint What We Know… … cross-subsidies divert profits... Fine Dining 46 clients 379 SKUs $199,846 Net Fast Food 129 clients 379 SKUs ($233,974) Net

* screen from WayPoint What We Know… … 5 x 5 focuses reps on priority accounts...

There Are Tactics to Correct… Sales Manage on the 5 x 5 Delta PBIT Incentives “More to the Core” Customer Deltas Cross-Sell Best Items Optimize Territories “Lead to Gold” “Wholetail” strategy Customer Service Big 8 Service Metrics People Engagement Metrics Product / Vendor Mgmt Product consolidation Vendor consolidation Special-order business Popular small picks

Current State Most information systems can provide granular information only to the Gross Profit level Most companies use Gross Profit as the baseline for sales commissions Most companies have attempted to integrate some part of their operating costs into the sales comp baseline load factors commission clawbacks minimum thresholds house accounts

Typical GP Commission Plan

Detriments of GP Comp comp is disconnected from operating costs incentive to loosen credit incentive to increase inventory incentive to over-consume company resources puts a “floor” under comp levels not synchronized with corporate objectives incents reps to hold every possible account

Effective Rates Report * screen from WayPoint

Effective Rates Report * screen from WayPoint

Effective Rates Report * screen from WayPoint

Effective Rates Report * screen from WayPoint

Effective Rates Report * screen from WayPoint

Effective Rates Report * screen from WayPoint

Effective Rates Report * screen from WayPoint

Effective Rates Report * screen from WayPoint

Effective Rates Report * screen from WayPoint

NBC Commission Plan

NBC Comp - Rep Report * screen from WayPoint

Benefits of Net Profit Comp Accounts for GM rates and all operating costs Completely synchronizes sales force objectives with corporate objectives Scales through the whole performance range (no floor) Changes sales management to sales coaching Engages sales force brainpower in all aspects of the company’s service models Rewards any and all sales efforts that improve profitability Rewards and incents all profitable business

What We Know… Very detailed & accurate granular costing  net profit / line item Line item summation / roll-up to customer, rep, etc.  ranking reports Strategic, incremental, innovation profit tactical plays at the extremes  channel friction reduction, big profit gains 3-wins for firm, rep and channel partners

What We Know… Tracking reports (e.g. 5x5) for Profit Plays Educational support: DVD, literature, online  new insights, skills and specific steps But margin-based commission locks in old motivations for reps how to realign reps with 3-win plays? run NBC reports in parallel and migrate

How to Create a Winning Incentive Plan

Elements of Good Comp Design Pay for Persuasion Protect Top Reps Earnings Share (not give) the Profit Protect Against Runaway Commissions Stay Within Budget Make the Sales Force Self-Managing Performance Insurance

WayPoint Data Stats (CY ) Commissioned Sales All Sales Gross Margin % (GP % Rev)19.5%18.5% Sales Compensation (comp % of GP)18.0%13.4% Sales Compensation (comp % of NBC)59.9%49.9%

Top-Down Plan Design Focus Mix Budget Total Comp Incentive Strategic Incentive Core Incentive Base

Top-Down Plan Design Focus Mix Budget Budget $5,000,000 Incentive $3,000,000 Special $300,000 Commission $2,700,000 Base $2,000,000

Transition to NBC Comp Keep most everyone whole Territory realignments Disclose everything Transitional rate steps Territory adjustments

* screen from WayPoint Transitional Rates …can start near legacy rates, then move down…

* screen from WayPoint NBC Rep Comm Report …with negative commissions…

Transitional Rates * screen from WayPoint

Transitional Rates * screen from WayPoint

Transitional Rates * screen from WayPoint

WayPoint Desktop Comp Tool

Implementation Requirements Effective plan design meets design criteria pilot or back-testing transitional rates Accurate and timely comp calculations Robust and effective plan communication Flawless execution We’ll help you!

Q & A

Webinar Follow Up… Follow-up webinar slide deck Bruce’s “NBC Comp” article information on WayPoint Analytics QPM newsletter links to Merrifield & WayPoint websites Book a private NBC Comp design webinar Book a WayPoint demo Upcoming webinars…

Attend Our Webinars Quantum Profit Management a new management philosophy that drives company profitability Radical Profit Improvement learn new techniques and tactics for managing bottom line profit NBC Sales Comp Design find out about NBC Comp and get started Tools & Techniques for Business Improvement VPs two-day course: education & networking

WayPoint Analytics Demo Customers Reps Vendors