- March 29, 2007
- Posted by: Dave Kurlan
- Category: Understanding the Sales Force
Today I spoke to a group of CEO’s at the Cornell Club in New York City. I’d like to thank Susan Villamena and Bob Heiss of S & R Associates for hosting the event.
Tonight I received an email from one of the attendees who was asking for help . He wrote that he (CEO) had a sales manager who was extremely ineffective at managing salespeople, but was a very effective salesperson. He went on to say that the manager was so ineffective, he is now managing only one of the salespeople and the others are being managed by members of the Executive Team. He said there is a four-year contract in place where the manager gets an override and he can’t afford to hire a new sales manager unless he terminates a salesperson. Talk about being between a rock and a hard place!
This is also a good example of how companies accept mediocrity. Let’s do the math again. Suppose the sales manager is earning an $80,000 base and overrides of another $50,000 for a total compensation of $130,000. This for basically doing a lousy job of managing one salesperson. Let’s suppose that we could leave the override in place and put this guy back in sales since that’s what he does best. His compensation reverts back to sales compensation so that only the override is eating a hole in our wallet.
Next, we hire a talented sales manager who takes over managing all of the salespeople, freeing the executive team up. The new manager gets a base plus override too, but only on incremental sales.
How much must sales increase per salesperson to cover the extra $50,000? Since the new override is on incremental sales only, the margin goes right to the bottom line. Using a worst case scenario and assuming a margin of only 15%, my guess is that sales only need to increase by about $350K or just $6,000 per month, per rep.
Lessons: Never let an employee hold your growth hostage. Never sign anyone who has yet to prove themselves in a role to a long-term contract. Your employment agreements should specify that employees are employees at will. Stamp out mediocrity, surround your salespeople with great sales management talent and grow the company.