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Extinction of the Sales Rep?

Like the internal combustion engine, direct selling persists despite technology and cultural shifts suggesting its demise.  Certainly, many of us in direct-selling roles consider much of today’s technology critical to our selling success.  But the fundamentals of sales success are as old as the wheel.

Notwithstanding there are bold pronouncements of how the internet will significantly marginalize the direct selling role.  Selling Power magazine publisher Gerhard Gschwandtner goes as far to predict that in nine short years only 3 million of the roughly 18 million salespeople employed in the U.S. need report for duty.  “In a digital age, every part of the sales and marketing process can be automated,” reports Selling Power.

The article goes on to say that increasingly, customers will make decisions based not on slick sales demos and well-timed follow up calls but on the advice of peers through social networking.

If you’re a salesperson reading this, you know there’s always been a social network, and you’re rather certain you’ll always be able to get a job as a sales professional.   Sure, customers get a lot of information that wasn’t available before.  You do also and use it to your advantage.

More at issue is how the sales compensation professional accounts for these multiple channels of influence relative to that of the salesperson.  One director of compensation for a consumer products company explained, “Customers used to rely exclusively on the sales rep for a lot of the information they now get over the web.  Our reps don’t have the same degree of individual influence (on customer buying decisions), but we pay them like nothing’s changed.”

Indeed, a recent study by Deloitte & Touche suggests that most companies have not found the right way to pay for sales performance, with significant implications for sales productivity. 

One would think we’re not prepared for this new age.  Like having bought an electric car and finding its plug incompatible with your garage electric socket.   But in the world of sales comp we’re convinced that all seemingly new trails have been previously trodden.  So we refer to our shelves and dust off the volume on “Alternative Channels.”  Not surprising the lessons in this volume seem particularly apt to the likes of Twitter and Facebook.

It goes something like this:  rep, having spent all available selling time with end users, must now shift some time to those “channel partners” influencing the customer through alternative channels.  Do we pay the rep differently for this shift in behavior?  Of course we do.  The solution could be as simple as measuring all sales volume in a particular, geographic territory, but paying at a reduced rate in recognition of the greater efficiency (and incremental cost) associated with the alternative channel.

This is a simple example.  Your reality may be a bit more complex – e.g., channel partner influence spans multiple, direct-sales territories.  At a minimum you may be looking at a less-aggressive pay mix to accommodate a job role with less direct influence and a higher skill level.  Or maybe performance measures not tied to transactional sales volume.

Case in point, GlaxoSmithKline reported changes to compensation for its direct sales reps, away from prescription sales volume and toward customer feedback, knowledge of the business and overall contribution to the business units they serve.  While at the time of this writing we can’t be certain GSK’s changes come in response to the massive number of tweets, posts and walls related to its product, we’re pretty sure the model of putting armies of direct sales reps on the ground of healthcare facilities, loading them with free samples, pens and bagels, is long in the tooth.

And while the industry overall has pared back considerably the number of direct selling jobs over the past three years, most firms are now hiring – GSK posted ten new sales representative jobs in the last 24 hours.

In fact, many companies across multiple industries appear to be on a sales-rep-hiring binge.   Far from being on its way out, the direct sales rep is in demand.   Three-quarters of the respondents in SalesGravy.com’s annual survey of sales hiring trends say they plan to hire salespeople in 2011.   A tech client having returned from her annual sales meeting last week said over 40% of the audience had less than 12 months’ time with the company.

Are we in a bubble-building mentality, soon to wake up and discover we have too many salespeople for the work required?  In all respect to Mr. Gschwandtner, we think not and hope his prediction is way off base.  The direct sales rep of the future will succeed in part by leveraging massive amounts of information that until recently didn’t really exist.  It’s a different, more complex job role though, and companies hoping to reap productivity from these jobs must adopt their sales compensation programs accordingly.

Several of our recent clients, representing industries ranging from high tech to packaged foods, share a common business challenge:  how measure and credit sales team members with responsibility for pulling business through various distribution channels.  These “sales out” representatives promote their products and services to end user customers who then fulfill their orders through the manufacturing company’s distribution partners.   Typically the company can track “sales in” to the distributor but not which end user ultimately purchases which product.  Channel partners might be reluctant to share information on their customers, may not have the systems in place or may just have other priorities associated with the management of their own businesses.  Such circumstances leave the manufacturer with little information as to what impact the sales out rep is having with his or her assigned accounts.  

We’ve often said that whoever solves this issue on a systematic basis will be in a position to retire in a few years.  In the absence of a silver bullet, or a market-dominant position where you can dictate terms to your partners, consider some approaches that we’ve observed be relatively successful:

• Rep incentive to recruit end users.  A “Bounty” is paid when the end user is on a regular, repeat, buying cycle and the sales team all have an equal opportunity to recruit their customers;
• CRM logged opportunities.   Credit is only granted for those opportunities that are logged in the CRM system prior to closing.  The rep then “closes” the opportunity after the customer’s purchase.  Rep-identified-closes and sales in data are then reconciled/audited, along with spot auditing of specific deals, to maintain the integrity of the process;
• Channel data tied to marketing funds.  A distributor or other channel partner’s willingness to supply end user information is tied to the company’s investment in business development and marketing activities with the partner;
• Team goals with individual variances.   The sales out team is measured on a team quota for the geography or other dimension.   Individual performance against a more measurable attribute – key sales objectives, new customer wins or potentially even team evaluations  – are then used to adjust the individual payout up or down;
• Foreshadowing changes.  While paid on a team quota for the current year, the sales out team is told that individual quotas will be implemented in the coming year for those accounts where the company is able to gather the necessary data.  The sales team thus encouraged to work with their customers/distributors to collect the data.  This argument hinges on the notion that sales people, particularly higher performers, prefer individual quotas over team measures .  Good management processes must be in place to vet situations where the data can’t be gathered  versus reps preferring a team measure;
• Fixed allocation of business.  Sales leadership and/or the account team agree on the relative allocation of the business that is credited to the salesperson.  An example might be a global account that provides overall sales out information, but not at the local geography level.  The fixed allocation assigns a certain credit percentage to the US, EMEA, AP, etc. and assumes that over time things will “balance” out.

The majority of these companies would prefer to measure their salespeople on an individual quota tied to revenue, margin or some other metric.    They are continually striving for ways to improve the quality of their reporting and measurement systems.  For those companies struggling with how to pay their sales out teams,  data integrity must be a guiding factor.  Individual quotas may make sense conceptually, but if your salespeople don’t trust the information being used, then the credibility of the program suffers and your return on compensation investment drops substantially.   We advise our clients to find a workable balance between precision and simplicity.

We’ve also started a LinkedIn discussion on this topic, to collect additional examples of approaches that work, as well as some that haven’t:  http://www.linkedin.com/groupItem?view=&gid=71015&item=23883963&type=member

Welcome to our blog. 

SalesCompInsights was created by Scott Barton and Mike Meisenheimer.  In our 30+ combined years of working on sales compensation design and management, we’ve collected a lot of  intellectual capital and developed a few opinions on the subject.  So it’s time to share.  This includes reliable information on sales compensation principles, as well as current trends and research. 

Over time SalesCompInsights will continue to evolve based on feedback we receive, specific requests and changes in the broader sales compensation world.  

From time to time, we’ll ask our clients — professionals in sales, HR, finance and sales ops — to comment on industry trends and news that impacts sales compensation policy and administration.

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