2005 Articles

Part II of our look at sales strategies opines on the dynamics of hired guns.

Speaking, as we were last time (May 2005), on sales strategies, different sales models work best with distinct personality types. The strategic account manager is typically a stronger process manager than a super salesperson. That individual often values predictable income and clear goals over the unpredictability of a field-based sales team environment. They may also like the predictability of a known set of relationships and have difficulty cold calling a large number of new accounts every month. Additionally, since a field salesperson typically needs to close a couple of accounts to make the same level of compensation possible in a strategic account position at a larger EMS company, an individual who hasn’t worked in field sales at the mid-tier level may become frustrated with first-year compensation as they fully understand the length of sales cycle and effort involved in cold calling. Conversely, field salespeople may like the challenge of chasing business, but lack the strong negotiation skills to close an account or manage a project transition in a strategic account management role. Some field salespeople never grow beyond the hunter/gatherer role and need a strong sales executive or program manager to assist in closing. Others are capable of handling the entire process.

Salespeople transitioning from other industries may not understand the need to sell at the executive level and have difficulty developing higher-level relationships or selling solutions vs. capabilities. Companies with productive sales teams carefully align candidate skills in these areas with their business model requirements and recognize that success in a different sales structure may not translate to success in their sales structure.

Measurement and Motivation

It is relatively easy to measure performance in longer term salespeople based on performance-to-forecast. However, the length of the sales cycle can make it difficult to measure performance in new hires. It is not unusual in mid-tier sales teams for a new salesperson to take nine to 12 months to close the first large sale. Consequently, measurement processes need to evaluate issues other than sales volume to determine salesperson effectiveness. Measurements tied to activity tend to reinforce the wrong behavior because the number of sales calls is not a good indicator of the effectiveness of a sales person. Many companies segment progress in the sales cycle and measure activity based on progression of accounts from one phase to the next. Longer term bookings-to-sales goals is an effective measurement. Many companies also measure quote-to-win ratio, since quoting activity alone does not measure account qualification practices well.

Compensation can be an issue. No company wants to pay a salesperson more than the CEO and an unlimited commission could potentially open the door to that eventuality with a high performer. Yet capping commissions either in terms of dollars or length is a big de-motivator for high flyers. When qualified salespeople are in short supply, commission caps can make it difficult to recruit experienced team members because on two equal offers they may choose the one with no cap. Salespeople who have reached a cap tied to total compensation may leave out of frustration. Conversely, salespeople with significant existing commission payments may be difficult to steal because the difference between competitive base compensation and their compensation is too great to match in the first year. Some companies recycle reps or salespeople every couple of years as commission liability grows. While that prevents “overcompensation,” the industry is small enough that word of the practice circulates and typically those firms have a harder time recruiting sales support. At the same time, some salespeople have a limited network of relationships and may be tapped out after one or two sales, so the accountability process needs to have a requirement for continued new account acquisition. Companies that appear to address this balance the best generally have a compensation system that decreases commission on existing business over time and will even penalize if new accounts are not won continuously. This system does not cap total compensation, but does minimize the probability that a salesperson will earn a large salary by maintaining a few old accounts.

Using Reps Effectively

Companies rarely select manufacturer’s reps based on the perception that it is the most effective model. Rather, companies use it because it is the most affordable. Making the model work requires an understanding of the dynamics.

Manufacturer’s rep organizations are based on synergy and economies of scale. If a firm represents a range of manufacturers and regularly calls on a group of companies in their region, it is likely that they will get sales for something on their line card fairly frequently. The challenge is that they may not be calling on the decision-makers who buy EMS services. Also, firms often focus on the products or services with the fastest sell cycles and best commissions. EMS tends to have lower commission percentages because of the size of the accounts and the lengthy sell cycle. Consequently, rep firms focused on short sell cycle commodities targeted at purchasing or lower levels of the organization typically won’t work well for EMS sales. Additionally, reps that also sell to other EMS companies are often reluctant to represent a single EMS company for fear of losing business with their EMS customers.

According to Leo Reynolds, president of Electronic Systems Inc. (electronicsi.com), recognizing the partnership element in rep relationships is very important. “We recognize that reps make an investment in developing new accounts and we look for long-term relationships. However, we do expect existing customer commissions to subsidize continued prospecting efforts in new accounts and look to end relationships where no new business appears to be developing long-term.”

Elliot Shev, senior vice president of sales and marketing at SMS Technologies Inc. (smstech.com) also sees value in motivating a focus on new business. “We pay commissions by part number on a sliding scale which decreases over a three to four year period. Under that system, a rep continually winning new part numbers in a customer would continue to see commission growth in the account, while a rep who failed to win new part numbers would see a decrease in commissions over time.” Shev adds that rep firms successful in EMS sales typically sell other long sale cycle, high dollar products or services.

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. Her column appears semimonthly.