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10 FEDA News & Views our information systems today, we can measure things like profitability per customer, per product line and the increase in SKU's per account, giving companies the oppor- tunity to measure results more precisely and properly incent for desired sales behaviors." Which is why he advises an annual gut check to make sure your current compensation plan is aligned with your corporate strategy. "Let's say you have a plan designed to incent your sales staff for growing specific lines and acquiring new customer accounts," says Kahle—who cautions against mudding the focus with more than five incentives. "At the end of the year, you may decide you do not want any more new customers, so you can revise the new customer incentive and put something else in its place. The plan is still the plan, it's just the focus has changed. You can make these kind of tweaks annually but every three to four years, you ought to dust the whole thing off and just look at it. You don't even have to revise it. Just look at it and see if it's still effective and efficient." To determine if a client's compensation plan meets the criteria, Kahle's consulting firm, the DACO Corp., developed Kahle's Kalculations, a method used to measure the productiv- ity of each salesperson against the cost of maintaining a sales force (i.e., compensation, administrative costs, sales management, taxes, etc.) and the total gross profit. "Typically, that number comes out to about a third of the company's gross profit and there is nothing else on the P&L statement that approaches that big of an impact," says Kahle, who offers the line-by-line analy- sis for free at davekahle. com. The freebie is consis- tently the No. 1 download on his site. (See the "Productivity" sidebar for more information.) "Thirteen to 19 percent is the ideal range for a salesperson but we use 25 percent as a benchmark," says Kahle. "If a sales force costs you less than 25 percent of the gross profit, you're a little bit on the margin but you're probably okay. Anything over that and you're probably losing money." our information systems today, we can measure things like profitability per customer, per product line and the increase in SKU's per account, giving companies the oppor- increase in SKU's per account, giving companies the oppor- increase in SKU's per account, giving companies the oppor tunity to measure results more precisely and properly incent for desired sales behaviors." Which is why he advises an annual gut check to make sure your current compensation plan is aligned with your corporate strategy. "Let's say you have a plan designed to incent your sales staff for growing specific lines and acquiring new customer accounts," says Kahle—who cautions against mudding the focus with more than five incentives. "At the end of the year, you may decide you do not want any more new customers, so you can revise the new customer incentive and put something else in its place. The plan is still the plan, it's just the focus has changed. You can make these kind of tweaks annually but every three to four years, you ought to dust the whole thing off and just look at it. You don't even have to IS IT TIME TO REVISE YOUR IS IT TIME TO REVISE YOUR IS IT TIME TO REVISE YOUR SALES COMPENSATION SALES COMPENSATION SALES COMPENSATION PLAN PLAN PLAN? By Stacy Ward, Managing Editor fedastacy@verizon.net W hen Dave Kahle sits down with a client to dismantle their compensation plan, he doesn't think in terms of the norm—as in variable commission, salary plus bonus or any of the other payment options rolled into an incentive package. Instead, he comes at it from a different perspective, preferring to compartmen- talize the process into two overriding themes: what is efficient and what is effec- tive. That's what a good plan does, according to Kahle. Rewards your team for doing what you want them to do—without sabo- taging your gross profit. "People say we want to have a straight commission plan and my response is don't go there yet," says the longtime sales consultant and trainer. "That's where you may end up but the incentive is the last thing that we do when we organize or re-organize a sales force. First, we have to decide what we want them to do and then how to measure it. One of the reasons why so many compensation plans are commissioned-based on gross profit is because, in years past, that was the only thing that you could measure. But with We never recommend having more than five incentives in a compensation plan. One of the purposes of a plan is to focus salespeople on the most profitable and most effective sales procedures. And when you start diluting a plan with incentive, upon incentive, upon incentive, then you start to lose the focus. --Dave Kahle, author of Question Your Way to Sales Success