Growth is the key to survival for any new startup. But be careful. Your sales team will do exactly what you pay them to do! If you pay by the hour, then you are giving them the message that you pay for attendance. They will put in the time but not necessarily do the job you need them to do. The alternatives require some serious thought: If you pay a guaranteed flat rate plus commission, how big is the guarantee? What is the commission based on? And what are the levels and how are they set? Can these levels be achieved at any cost, because if they can, your sales team will spend as much as necessary to make sales, thereby reducing your overall profitability.

So you need a system that rewards for sales, growth and profitability.

This may sound simple, but it’s not. Your salespeople must be provided with last year’s sales figures. They have to be aware of the cost of sales. And they should understand the cost of goods of each of the products your company sells. Although they have no control over the cost of goods, they can increase profitability by offering discounts on products that have a lower cost of goods, rather than discount products that have a higher cost of goods.

We built our system over a period of years of trial and error. First, all sides had to agree on the term, what was being measured, when, and why. We started by providing a small base salary that would basically cover their bills.

Every territory was different and had to be treated differently when analyzing sales. In each, we used the sales for each month last year and the cost of those sales per case. That became our baseline to compare to this month’s sales figures. We then determined profitability per case in that territory.

But some argued it wasn’t fair because of special market dynamics that created one-time anomalies. So we calculated a 3-month average, using the previous month, the same month, plus the following month of the previous year. This became our new baseline for sales this month this year.

Now we needed a plan that would reward for growth, which was sales greater than the baseline. We paid commission on each case sold that exceeded last year’s 3-month baseline.

Then, if in any given month, sales exceeded the baseline by a pre-agreed upon amount, say 25%, the commission would double on all cases back to the baseline. And if sales exceeded the baseline by 50%, all cases over the baseline were worth 3 times as much in commissions.

So the same case could be worth one, two, or three times the commission if the salesperson hit the various plateaus. Our salespeople naturally would push for the next highest plateau every month!

We also kept a close eye on their cost of sales and would reward them for savings in this area, or penalize them for increased costs. This kept them mindful of the costs and use of marketing materials, sales trips, distributors’ incentives and other costs required to make sales. Our sales staff became very resourceful and frugal!

Finally we were paying for sales, growth and profitability. Within two years of implementing this plan, we became one of the fastest growing wine brands in the country. It was well worth the effort! Now, with the proper compensation plan in effect, you too can watch your sales, growth, and profitability soar!

Who We Are

Michael Houlihan and Bonnie Harvey co-authored the New York Times bestselling business book, The Barefoot Spirit: How Hardship, Hustle, and Heart Built America’s #1 Wine Brand. The book has been selected as recommended reading in the CEO Library for CEO Forum, the C-Suite Book Club, and numerous university classes on business and entrepreneurship. It chronicles their humble beginnings from the laundry room of a rented Sonoma County farmhouse to the board room of E&J Gallo, who ultimately acquired their brand and engaged them as brand consultants. Barefoot is now the world’s largest wine brand.

Beginning with virtually no money and no wine industry experience, they employed innovative ideas to overcome obstacles, create new markets and forge strategic alliances. They pioneered Worthy Cause Marketing and performance-based compensation. They built an internationally bestselling brand and received their industry’s “Hot Brand” award for several consecutive years.

They offer their Guiding Principles for Success (GPS) to help entrepreneurs become successful. Their book, The Entrepreneurial Culture: 23 Ways To Engage and Empower Your People, helps corporations maximize the value of their human resources.

Currently they travel the world leading workshops, trainings, & keynoting at business schools, corporations, conferences. They are regular media guests and contributors to international publications and professional journals. They are C-Suite Network Advisors & Contributing Editors. Visit their popular brand building site at www.consumerbrandbuilders.com.

To make inquiries for keynote speaking, trainings or consulting, please contact sales@thebarefootspirit.com.

The post Base Compensation on Sales, Growth, and Profitability appeared first on The Barefoot Spirit.

Brian Tracy says, “If you want to be successful, ask yourself this question: How can I increase my service to my customer today?”

More than any other type of business, service businesses are reputation driven. After just two years, most service businesses are fully reliant on 80% return business. Are your clients sending in more clients?

Here are four ways to classify your clients and customers to help answer that critical question and provide some insight about your ability to satisfy them:

1. New: These folks are new to your business. They walk in the door, either because of your advertising or because of the general reputation of your business. In the early days of your business, they represent the majority of your clients. It is critical that each one of these new clients, “trying out” your business for the first time, leaves with glowing reviews to pass on to their friends and associates. But new, first time clients, can’t go on forever. Sooner or later you will go through all the new clients in your area. If you are in business for even 6 months and you still have 75% new clients, you are in trouble!

2. New Requests : These are New Clients who are requesting a specific person on your staff. This benefits the overall reputation of your business, and ultimately, its very security. The requested party needs to be rewarded for this personal reputation. Conversely, your associates who never get requested by new clients may be going through the “new” clients without them ever recommending your business or coming back to your establishment. Time to review their tenure.

3. Returns: (not necessarily requesting anyone in particular): These clients are good news – bad news. The good news is that they trust your business as a whole, without loyalty to any one particular associate. They are touting the merits of your business in general. The bad news is, if they have a bad experience, they are liable to say that the whole business is going down hill and hurt your reputation. Aside from a “New” client who is dissatisfied, that you never hear from again, “Returns” are the next most likely type to disappear. Try to find someone with whom they will be happy with as soon as possible.

4. Return Requests: These clients are returning to your business, requesting a specific person. They are loyal to the person who provided dependable and added-value service in the past. If that person leaves your business, those clients will follow him. Associates who have a large percentage of “Return Requests” should enjoy higher compensation and ultimately some equity in your company to reduce turnover. Your compensation plan should encourage this type of service professional. That plan will attract and keep the type of performers you need to grow your business. It is critical that you know early and often who they are.

The best time to find out what type of clients your service business is attracting is when they make an appointment or reservation. A few short questions at that point will quickly tell you into which category they fall. Constant vigilance and analysis of these four simple client types will give you the insight you need to craft compensation plans that get and keep return clients and customers.

Today there is much talk about Customer Relations Management, but it’s critical to step back and look at the big picture with these four general categories in mind, especially when you are in a service business.

Next time we will discuss some tips to attract new business, keep your performers, and increase your service to your customers.

Who We Are

Michael Houlihan and Bonnie Harvey co-authored the New York Times bestselling business book, The Barefoot Spirit: How Hardship, Hustle, and Heart Built America’s #1 Wine Brand. The book has been selected as recommended reading in the CEO Library for CEO Forum, the C-Suite Book Club, and numerous university classes on business and entrepreneurship. It chronicles their humble beginnings from the laundry room of a rented Sonoma County farmhouse to the board room of E&J Gallo, who ultimately acquired their brand and engaged them as brand consultants. Barefoot is now the world’s largest wine brand.

Beginning with virtually no money and no wine industry experience, they employed innovative ideas to overcome obstacles, create new markets and forge strategic alliances. They pioneered Worthy Cause Marketing and performance-based compensation. They built an internationally bestselling brand and received their industry’s “Hot Brand” award for several consecutive years.

They offer their Guiding Principles for Success (GPS) to help entrepreneurs become successful. Their book, The Entrepreneurial Culture: 23 Ways To Engage and Empower Your People, helps corporations maximize the value of their human resources.

Currently they travel the world leading workshops, trainings, & keynoting at business schools, corporations, conferences. They are regular media guests and contributors to international publications and professional journals. They are C-Suite Network Advisors & Contributing Editors. Visit their popular brand building site at www.consumerbrandbuilders.com.

To make inquiries for keynote speaking, trainings or consulting, please contact sales@thebarefootspirit.com.

The post How to Improve your Service Business appeared first on The Barefoot Spirit.