Increasing the average price by just 1% can lift operating profit between 7-15%. This will almost always have a greater impact than either trying to increase sales or cut costs.
It is essential to include pricing in sales compensation plans. Profit leakage often arises from the discounts negotiated by sales reps.
All too frequently, sales reps do not understand the negative impact that these discounts will have on overall profitability. And there is an understandable resistance to controlling the salesforce’s ability to offer discounts. It’s like asking a sales rep to do their job with one hand tied behind their back.
So that raises the question, how can profit-oriented measures be introduced into sales compensation plans?
Identify which sales roles are best suited for measurement through pricing KPIs and which KPIs will work best for each role. These will be different for every organization. KPIs need to be matched to the competence and quality of the salesforce, making sure they are easily understood by reps at different levels and in different roles.
Define the company’s business objectives and sales strategy across all its markets, making sure all KPIs support those goals.
Work out the relative weight of profit-related KPIs versus other incentives, making sure they complement and enhance existing incentives.