2005 Articles

Your sales structure should align with your business model.

Many electronics manufacturing services companies were launched by engineers or technical business executives who won initial business through personal relationships with a few key accounts. In the history of the top EMS contractors, there is a definitive point at which each company had a spurt of growth that took them from a $100 or $200 million player to several times that size in a relatively short period. Typically, that growth spurt either tied to a series of acquisitions of competitors or customer facilities or very focused growth within two to three large customer accounts. In short, most large EMS providers can attribute their success to senior management strategy or strong relationships with a few large accounts rather than a superior sales force growing the business over a diverse set of accounts. Often executives who remember those dynamics from experiences earlier in their careers are reluctant to invest in more formal sales and marketing processes.

As the dynamics of the market change, so must the sales strategy. The market has evolved into a structured entity where a company’s size and service model may drive a range of sales strategies. The number of competitors has grown, and the sophistication of the customer base in terms of understanding the full range of options is much greater. Competitiveness involves greater focus in formal sales methodology. This column looks at some of the challenges and differences in strategies.

Challenges include:

• Selling top management on needed budget.
• Identifying and recruiting qualified salespeople.
• Adequately measuring productivity.
• Aligning sales team with business model.
• Teaming sales and program management productively.
• Developing compensation programs which motivate (and do so cost-effectively).

Depending on company size and business model, sales structure may be one or a combination of:

Strategic account manager. This may be a hybrid program manager/salesperson or a strategic account manager limited to a single large account. This model is often found in Tier 1 EMS providers where large account growth is critical. This individual may be able to develop deep relationships in multi-divisional accounts and identify strategic business potential not visible to a salesperson focused on a single division or active in a large number of accounts. However, if the individual moves to a competitor, a key account may be vulnerable. Reporting structure may be through a senior sales executive or with another member of senior management. The focus may be split by EMS business unit or geographic region of the world, or controlled centrally.

Sales team. This model typically pairs a group of regionally focused dedicated salespeople reporting to a sales executive with program management reporting to an operations executive. Team members may be hunter/gatherers who simply qualify accounts for a strong sales executive or program manager, or they may be closer to the level of sophistication of the strategic account manager. This model allocates dedicated resources to field across a wide range of accounts, but often has high fixed costs and it can be hard to ensure consistent productivity across the entire team. Division of labor between program management and sales can also be a challenge.

Manufacturer’s representatives. This model typically has no fixed cost of sales until accounts are won. The disadvantage is the great variance in effectiveness of reps for EMS because of the long sales cycle, composition of decision team and need to tailor solutions for each account. Reps may be an extended part of a sales team strategy or be simply “feet on the street” supporting an EMS executive who has sales as one of several internal responsibilities.

The right model relates a combination of factors including:

EMS growth model. Companies focused on growth through acquisitions or key accounts may benefit more from a strategic account manager than a sales team because it generally has a lower incentive compensation cost than commission-based models and may be more flexible in a rapidly changing business environment. Companies focused on a range of smaller accounts ($2 million to $50 million) benefit from the broader focus of the sales team model.

EMS internal account management structure. The level of sophistication of a salesperson relates to the program management model used. Some EMS companies use a model where the program manager handles quoting, closes the account and is completely responsible for continued business growth. Others use a salesperson model where the salesperson handles the account through close and then account management transfers to the program manager. Others have an interim teaming effort for closing and transition and may split account growth responsibilities for existing business. If a strong program management model is in place, lower level salespeople or reps may be used. The potential negative may be lost accounts if a program manager becomes overloaded and inadequately manages account close or existing business.

Availability of resources. Many smaller EMS providers do not have the budget or resources to maintain a large sales team. They often gravitate toward a rep strategy because it extends resources at a low fixed cost. The potential downside is the opportunity cost of slower sales growth due to less focus in the sales effort.

Project size. The sales team model often uses a combination of base salary and commission to drive accountability and motivate the team to pursue new accounts. The strategic account manager model tends to rely on a base salary and annual bonus tied to goals. If the goal is to motivate salespeople to chase a large number of small-to-medium accounts, a lower base salary combined with good commission potential is cost effective because sales performance drives total compensation cost. Productive salespeople are rewarded. Sales activity without results is not rewarded and there may be significant effort involved in winning each new account that does not offset the fixed salesperson cost until the account starts to generate revenue. The promise of commission rewards the front-end effort at a lower fixed cost. There may be a cap on length of commission that limits the upper compensation amount to offset the potential that a productive salesperson could retire on the job once a few long-term accounts are won. When an individual is focused on very large accounts or a single large account, commissions can be cost-prohibitive. Often the large account is growing automatically and incentive compensation should be focused to reward the account manager for achieving specific account margin goals vs. managing a growing account. The larger base salary and focused set of responsibilities help offset the lower bonus opportunity.

My next column will look at effective use of reps.

Susan Mucha is president of Powell-Mucha Consulting Inc., a consulting firm focused on optimizing EMS account acquisition processes, and the developer of numerous EMS training programs; smucha@powell-muchaconsulting.com.