I constantly run into situations where building materials sales people are not in alignment with the objectives of their companies. This also means that a lot of the marketing expenditures are frequently wasted.
Building materials companies hire me to help them grow their sales. Sometimes this means gaining more customers instead of increasing sales to existing customers. As part of my process, I ride along with sales people to meet with customers and prospects to identify the barriers to the client’s sales growth.
Based on this research, I develop a recommended plan to gain these new customers. My recommendation includes the type of customer the sales person should call on, what they should say to the customer as well as a marketing plan to support these sales efforts.
I then run into a roadblock that makes it harder to grow the client’s sales. The roadblock is how the sales people are compensated. While my headline was designed to get your attention, I don’t think most sales people are over compensated. I just think the way their compensation is structured is frequently not designed to reward the same type of growth as the company desires.
I’m sure some companies have well-designed sales compensation programs that are in alignment with the company’s goals. Compensation plans that reward the desired behavior.
The type of compensation roadblock I run into is one in which the sales people are rewarded for overall sales volume, without regard to where it comes from. Most sales people are smart, so they focus on how they can make the most effective use of their time. They call on those customers who offer the greatest opportunity to deliver the largest sales volume in order to make the best use of their time.
That is only smart as salespeople are asked to cover larger territories and are under pressure to deliver volume.
The Problem When Sales People Are Compensated Just For Overall Volume
Sales people will tend to focus on servicing existing customers as they represent the majority of their overall volume. The fear of losing that volume can outweigh the potential upside of gaining a new customer.
They can start becoming more of a customer service rep and may even forget how to sell. You may even feel that they are more loyal to their customer than to you, their employer. You see this when they push back against price increases and are making lots of special requests for their customers.
When you have a goal to grow by adding new customers, you will also frequently invest in a new marketing program. I then find that the sales people have little interest in calling on these new customers so much of the marketing investment is wasted. Why advertise to builders is no one is going to call on them or follow up on leads? And who can blame the sales people, the way they see it is, “Help us grow and reduce your income.”
Developing new customers takes time, usually more time than it takes to grow an existing customer. Developing new customers also requires lots of handholding like installer training on job sites, setting up local dealers or distributors and even helping to place orders.
New customer orders are initially likely to be small as they try you out. And a final problem is that calling on new customers takes time away from existing customers which may make it easier for a competitor to take your existing customer away.
Two Ways to Get Sales to Support New Customer Growth
- Give them added compensation for new customers. This will eat into your margins but shows that you’re also putting some skin in the game. The added incentive for each new customer can be scaled back over time with the potential earn to more on additional new customers.
- Another option is to make new customer acquisition part of their compensation. I don’t know if they still do this, but 3M used to tell their business units that a percentage of their income every year had to come from new products. Why not do the same with sales people by expecting that they will generate a percentage of their compensation every year from new customers.
Not For Every Company
There are some companies who so dominate the market or sell into a very consolidated market that they aren’t looking for customers. Examples of this are if your focus is on big boxes or distributors.
If you count on your growth to come from customers like builders, contractors or architects, you can always be adding new customers.
The other place where I see a need is if you are successful in commercial and want to grow into residential or vice versa. In this case, the sales people will usually do everything they can not to call on the new market. They will have lots of reasons why they don’t have time. They also are frequently unprepared to call on this new market and have to spend even more time learning how to be successful.
When entering a new market such as moving into residential or commercial, I find that is always a better idea to hire one or more new sales people with experience and ideally, relationships in the new market.
I am not a sales compensation expert; I just see this problem pop-up too often when a building materials company wants to add new customers.
If you’d like to grow your sales by adding new customers or entering new markets, contact me to discuss how I can develop a plan for you to succeed.