The objective of sales effectiveness is to align sales force behavior with corporate strategy and gross margin objectives.
The MarginMaxTM solution starts with an evaluation of contribution margin by customer and territory. Typically this analysis will show that the sales force has been selling for highest revenue (and compensation) but that some of the top customers may by contributing very little margin because of outsized volume discounts or specialized product features or handling or support costs.
Compensating the sales force in a way that directly supports the corporate strategy and gross margin objective will deter the sales force from misallocating their time or the company’s products into less profitable territories or customers. Any existing compensation scheme can be modified to reward on gross margin rather than revenue. MarginMax has developed a variety of compensation approaches that meet the desired outcome. A transitional approach that moves compensation from revenue to a gross margin basis over the typical sales cycle time works best to avoid sales compensation disruption and sales force resistance.
A customer profitability model is also developed that that identifies the optimal customer mix by customer type measuring revenue, gross margin dollars, and gross percentage. The actual customer base is analyzed against the model and a gap closure plan is developed.
Sales management has a very significant role to play to enable the company to reap the benefit of this compensation driven behavior change. Tools must be provided to help the sales force decide where and how to sell. Sales people may need to be redeployed. Territory and quota management goals will have to be redefined. The value proposition for each segment may have to change to encourage the customers to see the higher margin products as their best value.
Metrics must be installed to both track performance and to guide sales management and the sales force as they redirect their efforts.