Considering a MPS Compensation Plan?30 Jun, 2010 By: Gary Halperin, FPL Reports
Considering a MPS Compensation Plan?
The strength of an MPS strategy is that the dealership is now aggressively going after growing their aftermarket revenues without having to rely on new or upgrade equipment placements. The new aspect of this strategy is that compensation programs now have to shift to pay aggressively on Service & Supplies, where before, the compensation was based on the equipment gross profit with some kicker for including a maintenance agreement.
An immediate conflict may exist in that the equipment reps will now ask for a portion of their aftermarket also. This can be countered with an explanation that these are two different programs and that they can make a choice of which one they want to be in. There should be a spiff to the equipment rep for any MPS plan put into their accounts to ensure that you get their cooperation in account management and introductions.
The prevalent method that dealers who have entered this field early has been to set up an annuity; pay some portion of the revenue or gross profit as these deals are billed monthly. I am a firm believer that successful companies have their goals and their commission programs aligned. Most annuity programs do not accomplish this. When a rep hears “annuity”, their image is based on how much effort do they have to put in for the short run to build up a compensation program that will pay them as they continue to work less. I don’t think that this is the vision that an owner has for their sales force.
Therefore, while I support an annuity program, I recommend one that diminishes the long term payout opportunity in order to keep the sales rep hunting and in alignment with the growth goals of the company. Additionally, because I believe that most sales reps are basically hunters, even though an annuity plan works well for MPS, I recommend that reps get paid on the value of what they sell, when they sell it.
The result of these two seemingly conflicting statements is “The Leaky Bucket” MPS compensation plan.
- Pay on the first year value of the contract upon implementation of the contract. Then pay a diminishing about for maintaining the customer relationship over the ensuing years.
If you are keeping your S&S rates non negotiable, you can pay on revenue. If there is some flexibility to move the rates to win a contract, then set a rep cost for S&S and use a GP calculation.
Example:300,000 page per month contract at .022 bills $6,600 per month or $79,200 for the year
8% of the first year revenue pays $6,336 upon signing
At the first anniversary, pay 4%; $3,168
At the second anniversary and beyond, fix the pay at 2%; $1,584
In order to get the entire page potential managed, captured and paid attention to, pay the overages as billed based on the same rates above.
Spiffs to the participating territory hardware rep can be any % of the amounts that are listed above. It can be the dealer’s choice if they choose to pay any more than the initial commission.
Hardware included in any contract should be paid along the same lines as your existing hardware compensation plans.
Note that it is difficult to recommend a particular compensation percentage due to the diversity of environments that all of the dealers work in. I recommend that you work the program backwards.
What is the desired level of compensation that I wish to pay a fully functioning sales rep?
What is the level of page performance that I expect each month, year?
What is the combination of salary and commission?
Set the rate for the commission with the activity to equal the commissionable portion.