Last year, an Irish printing company was forced into drastic action when the loss of a major blue-chip client caused a radical rethink across its businesses. One of the changes implemented was a shift in the way it rewarded its sales staff. Previously, the sales team had a commission structure based around the volume of work they brought in, but company bosses abruptly realised this was driving the wrong behaviour, and switched things to a contribution-based model as a result.
In this example, it took a major crisis for the company to switch its strategy, but with so many printing companies currently at crisis point for one reason or another, it's an issue that is affecting plenty of firms up and down the UK.
Historically, there were, in general, good margins to be made in print, but that can hardly be said to be the case today. The PrintWeek Top 500 survey reveals a weighted average pre-tax margin of just 1.69% and the figure has been bumping around at the same sort of level for the past five years.
With trading as tough as it is, the old saying ‘turnover vanity, profit sanity' has never represented such good advice. David Barnfield, managing director of results-based training and consultancy specialist Profit Improvement Programme Associates (PiP), based in Leeds, says: "If you're paying on volume you're saying that what's important is filling machines. It's not. What's important is making money."
Change programme
Barnfield has been involved with change programmes at a wide variety of print and packaging companies and he recently worked with a sizeable B1 printer that wanted to implement a new bonus scheme for its sales team that is now based on gross profit. The results have been very positive.
"They have moved dramatically from guys who were looking for any business they could find in terms of volume, to being people who are thinking seriously about creating profitable volume in a way that is aligned with the company's overall strategy and matches the business's goals and profit ambitions," says Barnfield.
In this case, the new way of working has been a contributory factor in moving the business from loss into profit, but a change in approach doesn't come without challenges, one of the most common being resistance from the salesforce. Barnfield's solution is simple: "Make sure people have the opportunity to earn the same amount as before - if not more, so long as they perform."
It's actually somewhat ironic that the example given at the beginning of this article involves an Irish business because the experience of recruitment specialist Dani Novick, director at Mercury Search & Selection, is that the majority of Irish companies - at least in the packaging market - operate well-formulated commission schemes that work to the benefit of all parties.
"What we've found is that the majority of Irish companies start people on a high basic salary and then reduce it as the years go on and the person becomes more established, while at the same time increasing the level of commission," she says.
Effective tie
"They base it on contribution, with a percentage paid on new business and also a percentage on existing business for a certain length of time. It's very effective and it ties salespeople into the company," adds Novick.
Another common stumbling block is the ready availability of the right sort of management information to make a contribution or added-value based scheme possible.
"At the moment, our sales rewards are volume-based, but we are considering paying on an added-value (AV) basis," says the managing director of a Midlands-based printer. "Traditionally, our sales staff haven't been measured on AV, because the pricing is ultimately decided at director level. Ideally, though, we would like it to be AV-based and we are looking to introduce that, but first we need our MIS system to be refined enough to give true and accurate data. It's going to be one of the big things for us this year."
This need to have a suitably sophisticated MIS in place is also cited by the managing director of a London-based sheetfed printing business, who says: "I am just putting in a new version of our MIS that will give me much more detailed cost and costing information. Once this is available, I will be able to act if certain accounts or sales staff are costing us money."
Sensitive material
When it comes to owner-managed SME printers, there's often also an understandable reluctance to divulge commercially sensitive profit information.
"Off the top of my head, I can't think of a single smaller organisation that pays on contribution," says Novick. "It's so surprising to me when sales people don't know the contribution of a job - how can they bring in the right business without it? It's a huge motivator, it builds loyalty and makes them more effective and rounded as a sales person. But many business owners see that sort of information as the crown jewels and are reluctant to divulge it."
Barnfield often deals with larger organisations, but he has come across similar reluctance here too. "There does need to be an element of trust between the commercial team and the sales team. But, actually, when it comes to situations like putting prices up, the sales guy suddenly understands that it will cost them in the pocket if they don't push it through."
He preaches his own personal brand of tough love for running sales teams and has short shrift for sentiment. One of PiP's key pieces of advice (see boxout) is to favour common sense over emotion.
"It's amazing how many people pay bonuses to sales staff that don't achieve target - they end up rewarding the nice guy, the person they like, rather than those who've achieved it. Do it once and you've set a bad precedent."
Similarly, he says bosses shouldn't be sympathetic if a sales person loses a large account for reasons outside of their control and then pleads for this to be taken into consideration in terms of reducing their targets.
"Tough," he states. "Everyone loses a percentage of business every year, that's just normal. If the same rep won a £500k account through sheer luck they wouldn't exclude that. You've got to take the rough with the smooth."
Total clarity
He believes that actions such as those detailed above should be intrinsic parts of an overall scheme where everyone has total clarity on what the objectives and targets are and how they are being met.
"Schemes have to be simple," he says. "It's amazing how many are so complicated that only three people in the company really understand how it works. People need to be able to clearly see, every month, how they are performing against target."
One additional aspect in the current trading environment, where company closures and cutbacks have resulted in swathes of sales roles being rendered redundant, is that those looking for new positions with the sort of high basic salaries previously enjoyed are finding a distinct lack of options.
"They are overpaid in relation to their contribution to the organisation," is Novick's blunt verdict. "It's not their fault, it's the employer's fault and something that's happened over time. But if these sales people understood their real contribution to the business, they would get a bit of a wake-up call."
Barnfield concurs: "Lots of printers pay pretty high basic salaries. They should be asking for serious results from it."
TOP TIPS: BONUSES
- Any bonus or commission scheme needs to be simple, clear and easily understood, so people can see how they are progressing
- Bonus and/or commission should be on top of what people are already paid to do. It should be over and above the base, not in order to achieve the base
- Pay bonuses in steps. This is an important motivating factor. Create incremental steps beyond the initial target that has been set to encourage people to achieve more and to push them to better performance
- Pay bonuses quarterly or monthly. If paid annually people lose sight of it and it becomes less tangible
- Don’t pay bonuses to people who leave the company half way through the structure. Write your contracts that way from the outset, so this is clear to all parties
- Never pay bonuses to people who don’t achieve target
- Publish a league table of results – nobody likes to be at the bottom of the league. Do it in the right way and it will be an additional motivating factor
- Don’t set unachievable targets. This is a big demotivator
Source: Profit Improvement Programme Associates
www.pipassociates.co.uk
