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Smart thinking for Optimum Comp Plans

26 Nov, 2007 By: Norman Mcconkey and Ronelle Ingram imageSource

Smart thinking for Optimum Comp Plans

Solution 1 By By Norman McConkey

Over the past couple of years I have been fortunate enough to interact with
hundreds of executives at various dealerships in North America. No topic elicits
more debate than a lively discussion on compensation models. Dealerships are
willing to add and remove vendors, add business units like networking or
document management, open up new offices, but change the holy compensation
model? No Sir. Sure, there is tweaking, but the fundamental model stays the
same. Here’s the problem: that business model no longer works in today’s
environment. I’ve got some numbers to prove it, as well as a few concepts that
may help you build a different program.

Now, let’s review the current model. Dealerships typically build their
strategy around hardware placement. Placement it seems, drives supplies and
service annuities in the form of a Cost per Page billing contract and a hardware
lease. The machine then is the razor, and blades come in the form of clicks.
Dealerships measure their success by their MIF (machines in field). If MIF is
growing, it should follow that revenues are also growing. To grow the MIF,
you’ll compensate your reps to sell more hardware. Hardware contracts typically
produce an annuity of anywhere from three to five years. Most current models pay
reps anywhere from 20 to 50% of the gross margin generated by a sale; “trailers”
are not popular as many owners see the annuity stream as their piece of the pie.

There are signs this model is no longer working for most dealerships. First,
the overall market for hardware among traditional copier manufacturers is flat.
Truly astounding when one considers that the onslaught of higher priced color
MFPs should have increased it dramatically. HP reported placement increases in
the Desktop and Workgroup network laser space of over 30% last year. Color
should raise the revenue a dealership sees as CPP are often ten times more
expensive than monochrome...but don’t get too excited by that. Look at overall
page volumes and where they are coming from. Among the typical office
installations it is no longer a certainty that high volume goes through the

Let’s review an account being monitored for the past year to illustrate these
issues: we’ll call it “Hilton Hotels.”

Figure 1 shows the devices and their page volumes in the month of August. For
its top 20 devices, in an organization with over 200 devices, you should spot
the issues immediately: only two of the top 10 devices here are “copiers,” and
none of the top five are. The majority of output is done on laser-based devices.
Although I sometimes get corrected when I call these devices copiers, it fits at
Hilton Hotels; these devices are being used exclusively as copiers. While the
volume looks okay, here’s the sad truth: only 20% of the company’s half a
million monthly pages are running through copiers. How would you feel if this
were your account? How could this happen? Compensation.

While I was not at the account to see the dynamic, I’m willing to bet these
machines were “lease rollovers.” Most dealerships estimate that over 80% of
their MFP business is lease rollover. The rep that closed the deal was likely
celebrated, because they did place 20 machines, but clearly the rep did no work
to understand where page volume was being generated in the account. If that
exercise had been done, we would see some of those laser devices supplanted.
There was also no effort made to understand workflow: how can I say this so
confidently? These copiers are being used the same way they were 15 years ago,
and who copies 15K pages in a month anyway? Does that not seem like an
opportunity to optimize workflow? The reality is, it’s not the reps fault. It’s
the owner’s fault. The rep did his/her job. They are paid to place machines and
not to maximize your share of pages in the account.

It makes me scratch my head when I hear copier dealerships tout their
competition as the dealership down the street. True there is the odd shootout or
RFP that you compete on, but your real competition, your real opportunity for a
dramatic increase in sales, is the unmanaged devices inside your accounts. So,
can a simple change in compensation plans accomplish this? Pretty much!

The average CPP we are seeing for laser printers is $0.02 for monochrome, and
$0.10 to $0.20 per page for color. Depending on your supplies preference, in the
Hilton Hotels account, you could supply compatible toner for 80% of the pages at
an average cost of $0.004. Since service and parts are much lower on laser,
$0.002 for labor, $0.0015 for parts are typical accruals in the industry. So,
you can run a supplies, parts and service business on $0.02 per page for a cost
of $0.0075. In the Hilton Account, this would generate close to $7,000 revenue
per month, and $83,000 per year. Translation: There’s money to be made here. I
propose that you set aside $0.002 for additional compensation. In other words,
the total laser page commission for this account in one year would be over

Will this work? As Isaid at the beginning, this model sparks lively debate.
They follow two lines: “My reps can’t do that, and I need to sell hardware or
else my business would fold; my vendors would look for another dealer.” Some
dealerships have implemented a team of specialists to get around this. How does
it work?

First, leverage your current account manager for access to the account. Their
job has always been to increase hardware placement and it still should be. The
Hilton example illustrates that there are obvious opportunities for incremental
MFP placement. Problem is, the current rep lacks the visibility to find those
incremental opportunities. Set things up so the current rep will get an
opportunity to sell any additional hardware opportunities which may arise from
an assessment. That should motivate them. Next have a specialist come in and
perform the groundwork. Install a data collection agent and begin tracking page
volumes, problematic devices and potential areas of improved service for the
client. The results of this assessment by the specialist should lead into a
print management contract, new hardware sales or both. This specialist will get
paid on the pages they secure from the laser fleet. Everyone wins. Dealership
and sales rep get to sell more hardware, and place it in high volume areas.

How does this work in practice? A specialist would augment your
current team. Introducing them as a specialist will impress upon the clients the
added value of the assessment you are providing. Their compensation plan of
$0.002 would take time to build. If an account rep can successfully bring on two
accounts per month, with an average of 30 devices each, in 12 months they would
manage 720 devices and earn a monthly commission of $5,472. Dealership revenue
increases by $41,000 – based only on $0.015 CPP.

In time, these specialists can become your account managers. You will always
need hardware sales reps. Closing sales of $50,000-$60,000 for five or six
machines is a skill you do not want to lose. If anything, these specialists will
help you sell more hardware. Consider that if you have 1000 accounts, and 15 per
cent of those accounts replace just one overworked laser printer with a more
robust MFP, you can add 150 devices x $10,000 or $1,500,000 in device revenue.
Your dealership wins in two ways from adding a specialist to the mix and
changing compensation plans: increased revenue, and ultimately control of your
customers’ printing fleets.

Paying For Performance

Solution 2 by Ronelle Ingram

I am often asked by dealer principles and sales managers, “How can we get our
sales reps to sell more document management and software solutions?”

My normal reply is a series of questions. “Is your commission schedule set up
to over reward document management and solution sales? Must your rep sell some
sort of document management or software solution, in addition to hardware, to be
eligible for a quarterly bonus?  Can residual revenue be earned by selling
service agreements above the minimum listed price?  Do you pay sales reps for
attending training classes? Do you bonus all your reps who have competed a basic
business accounting class?”

All too often my questions are met with a blank stare from the responding
dealer. When I push for an actual answer, an inevitable “No” is the reply to
each query.

If your company’s written commission schedule does not include bonuses and
ongoing commissions for the sale of document management, software and aggressive
maintenance agreement pricing, it will be difficult for your company to have
your sales staff focus on the profitable document imaging, fleet management and
software driven markets.  As long as your commission structure rewards only the
selling of hardware, that is what your reps will sell. 

Before your sales people can effectively sell document management and
software solutions, they must understand the general scope of how the software
programs are used. Return on investment is a greater selling tool than features
and functions. 

The dealer must establish a program that pays for learning. Salespeople are
not motivated to take part in activities that do not have monetary gain directly
attached to the process.  During the initial training phase, which can take
weeks or months depending on the intensity of the training schedule, the rep is
awarded additional bonuses to help compensate for the time that is being spent
learning new skills.

Example: During training, an additional 10% commission is earned on all
sales. Upon completion of the training, 20% bonus is awarded on all sales during
the next six months.  Those that do not take part in the training course will
receive only 75% of their base monthly salary and standard commission rates.

As sales reps adhere to the training program, their connected, fleet
management and solution–based sales will increase. Knowledge is power in the
selling arena. The reps will also have the freedom to work without having to
make an appointment (or be hindered) with a tech to accompany them on the sales

In Southern California, a large metropolitan area, nothing less than $1000
seems to motivate reps out of their comfort zone. In other areas, a smaller
bonus may entice the sales rep to seriously get involved with learning how to
use the mathematics of return on investment to sell document management or
specific software package. 

All training bonus money is tied to on going sales. An easy way to appraise a
rep’s product understanding is their ability to train the end user. In many
companies there is dissention over who is responsible for training the customer
and what department will be compensated for the time required for training. 

Sales reps that have the ability to train the end user have a greater
opportunity to maintain an ongoing contact with the buyer. Often additional
products are needed to enhance the original sale.  The rep is immediately
available to close the additional sale at the time of need. This ongoing
relationship keeps the sales rep in the perfect position to make future sales. 

A sample sales bonus program for gaining knowledge includes: 3%-6% commission
bonus based on the cost of the equipment; paid at the time of sale; $300-$700
bonus when the sales rep does all the end user training.  This bonus is paid
after six months if no service calls were required by the end user for
additional user training. 

Normally this type of structure will include about a $1000 of additional
money for each deal.  Waiting six months to pay the sales rep for successful end
user training provides an ongoing annuity program to encourage sales reps to
continue working for your company.  The ongoing end user contact provides
additional sales opportunities. It also reinforces the reps’ ongoing familiarity
with the product.

How does the dealer recoup the money that is going to take to train and bonus
the sales reps?  The cost of having service technicians accompany sales reps and
provide end user training is enormous. Requiring a technician to meet a sales
representative at 10 o'clock in the morning can easily cost the service
department 4-6 hours of non-sellable labor.  There is constant tension between
the sales and service department caused by each feeling the other department is
not cooperating with the other’s scheduling needs. Often both feel they are not
receiving their fair share of the revenue.

The real cost-effectiveness is achieved when your sales department out
performs the competition. Knowledge sells. Competency sells. The more the sales
rep knows, the easier the selling process becomes. 

Those who have a larger sales staff will immediately be able to see the
success of those who have committed to learning solutions sales. The
underachievers must make the personal commitment to learn the popular software
and document management packages or have their earnings greatly reduced. The
achievers will prove to the others that it is possible to learn and earn.

If management does not change the commission process to overly reward the
solution sale, your sales department will continue to see lower hardware
margins, discontented reps and employee turnover. 

The same principle holds true for Maintenance Agreements selling. As long as
salespeople are not offered an incentive to sell Maintenance Agreements above
the minimum listed price, they will always designate any extra money in the deal
to the cost of the equipment.

Just as you pay a commission on equipment pricing that is above the base
transfer/ salesperson’s rate, offer that same program for the MA or CPC sales.
Pay 50% of ‘over minimum pricing’ back to the sales rep on a quarterly or yearly
basis. Some dealers’ bonus is the price of the first month’s agreement while
others prefer to provide a long term earning potential to the sales rep. Under
any bonus program, your company will receive an additional revenue stream for
1-5 years.

Example: The minimum listed selling cost of a CPC is .009 per click. The rep
sells the service agreement for .0095 for 100K clicks per month; 1st year
additional revenue is split 50/50 between the company and the rep. Over the
course of one year, the rep can earn $300. (1,200,000 clicks X .0005 additional
revenue = $600 X 50% = $300) The $300 bonus will be paid at the end of 12
months. If the sales rep is able to sell five machines a month, over a 12 months
period, maintenance agreement bonus money can easily amount to over $10,000 per

You can also offer commissions on accounts a sales rep agrees to obtain the
necessary meter readings. Imagine the possibilities when a sales rep has the
opportunity to walk into a customer’s office once a month, no appointment
needed, and look at every piece of equipment. They can check supplies,
discreetly talk to an end user, or drop by the controller’s office.

Give your sales reps the option of receiving a residual percentage (.5%-5%)
of the service agreement revenue on any client that they regularly visit to
record meter readings. This saves other staff (clerical or tech) members from
having to get this information. It also provides the sales rep with a legitimate
reason to get out in the field and keep in contact with their clients.

A smart rep will plan to visit other (potential) clients in the same area. It
is an easy way to keep your reps in front of the end users. Having the
opportunity of being paid an ongoing   percentage of the MA/CPC encourages the
rep to maximize the original selling price, including the periodic increases.
The rep will also make sure the in-house administrative adjustments are made at
the appropriate time. 

When the sales rep’s income is dependent on accurate and timely meter reads,
there is an increased checks and balances within your own company. Often, a low
paid clerk is responsible for billing thousands (or millions) of dollars of
service agreements with very little direct supervision. Rarely are individual
pricing and increases reviewed on a monthly basis. 

When reviewing dealer’s maintenance agreement pricing, I sometimes find color
being billed at .008 instead of .08.  This is an over looked input error. One
sales rep discovered an end user was running predominantly 11 X 17 paper.  The
copier was only registering one click per copy. The click default setting was
not set up properly. The sales rep’s ongoing MA compensation plan is set up to
make sure that what is best for the rep is also best for the company. 

The longevity of a sales rep’s employment is in direct ratio to a well
thought out compensation/ commission plan.  Identifying and rewarding ongoing
engagement with the client creates relationship selling. A creative compensation
plan that sets up residual income will do more for the long term sales rep’s
employment than threats of being terminated if their quota is not achieved.

A dealer’s commission schedule can change the focus of staff’s selling style.
Higher service agreement rates allow for five years of ongoing revenue. If your
dealership wants to take the focus away from meeting their manufacturer’s quota
by selling boxes, start thinking outside the box when structuring your
commissions. Solution sales and higher maintenance agreement pricing will be
achieved when the dealer makes sure the sales rep has a positive answer to
'what’s in it for me'? 

Ronelle Ingram has more than 30 years of experience in the copier industry
and is currently the vice president of a service company in CA, and is
President-Elect of the BTA. She can be contacted at 714.744.9032 or emailed at

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