Question

Topic: Strategy

“what Is The Best Sales Commission Structure?”

Posted by NovaHammer on 4/3/2011 at 8:48 AM ET 1000 Points
Client used Sales Cooperative Model; lost manufacturers exclusive distributorship and subsequent larger Sales Partner commissions for Regional supervisors.

Big Box Grocery will now carry product also but this has failed before. Some coaching/hand holding is required for the product and local Coop Model seems to work best. Brand could suffer overtime without sales 'skill support' from Coop.
Manufacturer may have killed the Goose ... in the long run.

How does Coop Leader reward Regional Sales partners now 14% Manufactures Commission is gone.

MLM is not what he wants.
To continue reading this question and the solution, sign up ... it's free!
SUBSCRIBE
Or, SIGN IN

RESPONSES

  • Posted by mgoodman on 4/3/2011 at 1:35 PM Moderator
    I've read your post and question twice now, and I don't understand the issue. Maybe you can re-state it in a simpler way. I get that there are reduced commissions, but that's as far as I can get.

    What's a "sales cooperative model?" What makes someone a "sales partner?" What's the difference between the "sales coop model" and "the local coop model?" If the product is sold in Big Box Grocery, what kind of sales support is required? What's a Coop Leader? Regional Sales partner? Regional supervisor?

    Sorry to be so dense, but I don't understand all the terms ... or the issue.

  • Posted by NovaHammer on 4/4/2011 at 6:10 AM Author
    Got it.

    Sales Co-op; not housing, not agricultural, not social, not utility and not banking or credit union but a hybrid bulk wholesale purchasing group.

    An adaptation of traditional cooperative structures to modern, capital intensive industries. They are sometimes described as a hybrid between traditional co-ops and limited liability companies. They were first developed in California and spread and flourished in the US Mid-West in the 1990s. They are now common in Canada where they operate primarily in agriculture and food services, where their primary purpose is to add value to primary products. For example producing ethanol from corn, pasta from durum wheat, or gourmet cheese from goat’s milk.

    'Sales partner' hosts a region and sets up town size wholesale buying groups with them on behalf of the manufacturer. Similar to an agent I guess but the local town coop then makes all there own decisions...
    after they've been given some system knowledge. This was producing 100% satisfaction with the product and the The Sales partner was receiving a direct commission.

    Big box stores offer nothing but shelf space no product education, no followup, no like minded forum opportunities. This failed once before.

    What is out there for my client (Coop set-up guys) that is not MLM pyramid sales model to replicate what they had before?

    They add value for new clients like a fitness coach adds value to your home gym. .... other wise it just holds drying laundry....and no positive results are achieved.






  • Posted by Jay Hamilton-Roth on 4/4/2011 at 9:30 AM Accepted
    It sounds like the regional coops can no longer compete on price. What about after-sales support/service?

    Instead of regional co-ops, can your client create a national co-op (a "traditional" coop) that can negotiate a "better deal"? What about a "Groupon-like" service for B2B sales for everyone to participate in?

    What about replicating the past success with a different manufacturer, that is more open to this win-win model?
  • Posted by michael on 4/4/2011 at 11:38 AM Accepted
    Kevin,
    If I'm understanding this properly, the manufacturer is no longer paying commission so the "set up guys" need to derive their income from the value they add.

    If that's the case then it's simply a set-up or franchise-type fee charged to the new co-op. A menu of services with appropriate pricing.

    Michael
  • Posted by telemoxie on 4/4/2011 at 4:39 PM Accepted
    it seems to me that this is fundamentally a question about the distinction between sales and marketing.

    When you need to educate prospects: how do you compensate the people doing the work? It seems to me that the answer is different for each product, for each market, for each distribution channel.

    In order for us to provide helpful recommendations, we would need a ton of information... and it is probably not a wise idea for you to post such sensitive information in an open forum.

    I personally spent 12 years researching the sales/marketing interface, working with literally hundreds of companies in dozens of industries. If you would like to discuss this further, click on my profile and send me an e-mail.
  • Posted on 4/5/2011 at 12:19 PM Accepted
    I agree with Telemoxie -- sounds like more of a project than a "forum answer." Having said that, four points:

    1) If professional fees make you flinch (and the good ones are expensive), negotiate a portion of them on a results or outcome basis.

    2) Consider submitting your question to some marketing professors at (a) business schools in your own backyard and (b) a couple of the world-class ones (Wharton, Harvard, Stanford). You suggest it to the marketing professor as a project for some of his best and brightest students.

    3) A derivative of the above is to create a team (with grad student members) to enter a business plan competition based on this opportunity.

    4) Lastly, borrowing an idea from MLM (of which I am by no means a fan), consider a "ratcheting up" commission struture. If you sell $1.00 of product, you get 2%. If you sold $5.00, five times as much, you´d get 10%.

    Best of luck, James
  • Posted by Chris Blackman on 4/5/2011 at 10:56 PM Accepted
    Why did the manufacturer remove the exclusive distribution rights?

    Were they not happy with the performance of the co-op channel?

    Sounds like the manufacturer made a decision that the grass was greener on the other side with big box retailers. Time will tell whether that is working out for them or not and the co-op has to keep really close to the manufacturer to stay apprised of the results of this experiment and to be in the right place if it goes pear-shaped with the big-box channel. Although they must be careful not to tread on toes - if their contact is the person who made the decision, they may not want to own up if it wasn't a good decision.

    Better to stay close and try to make small gains in the commission structure in return for gains in sales volumes - because that's all the manufacturer is going to be interested in.

    Meanwhile how does the co-op keep the channel focused when much of the channel's income has dried up? Well, maybe the channel now has more time to focus on higher-yielding opportunities, products and services and that's where the co-op leader needs to ensure the sales focus goes. Drive performance where the income is going to be earned - reduce the focus on lower-yielding commission-paying products.

    That way the manufacturer has to be able to see the effect of reduced commissions = reduced sales performance through the co-op channel. And the co-op leader needs to sheet that message home in all their dealings with the manufacturer. Commission lever set high = higher sales (that had better be true)! And commission lever set low = lower sales.

    And if the manufacturer shows no sign of returning to the previous model, the co-op leader needs to find products and services to replace that income - same as any traditional agency channel sales model.

    Have to concur with Dave (Telemoxie) and James Hamilton that this should be a paying consulting project - and perhaps it already is for you. The co-op should invest in some external assessment of its own performance and get expert help to replace the lost income.

    Hope that helps.

    ChrisB
  • Posted by NovaHammer on 4/6/2011 at 7:36 AM Author
    Wow 'guys' lots of great insight here!

    ..... I always said "Why own a dog and bark yourself"





    In simple terms some of the concern is also repeat orders and residual commissions over the years..for those Sales Partners considering joining the remodelled network.




    I'll forward all your thoughts however this is a LEAN (Principles of Lean) operation at the CO-OP end and adjusting in a timely manner vs a starting a project is driving some of this concern for change.

    You guys have put a lot of thought into this many thanks again. Profs Indeed!!
BACK TO TOP

Post a Comment

Related Discussions

Community Info

Top 25 Experts
(Strategy)