The next question to consider when you are designing sales compensation is: “Are we a supplier or a vendor?”
Without wasting time on the differences or similarities of the dictionary definitions, here are mine:
A supplier provides goods or services (collectively “products” throughout these discussions) as purchased by the customer when they are needed. The products are available from other suppliers, and there is little difficulty for the customer to purchase them from another source or multiple sources.
A vendor delivers products that for reasons of exclusivity, regulations or barriers to exit can typically only be provided to the customer by one vendor at a time.
So the local fastener house or auto parts distributor, who sells against 25 other similar suppliers with the same products, are suppliers. The accounting firm or the janitorial service is a vendor. In my last post, Boeing is a vendor; the beauty products distributor is a supplier.
In my last post I mentioned business owners who wanted to pay “commission only” inappropriately. For an extreme example, lets take a CPA firm I work with. They recently interviewed a prospective business development rep. He offered to work on commission only.
Unfortunately, this man disqualified himself in my mind with his initial offer. He was not (at least to my knowledge) fabulously wealthy. Yet he was offering to take a job where the average sales cycle is two years or more! What did he plan to eat between now and 2011?
Vendor salespeople are much more likely to have a base salary or guaranteed minimums. If you are completely devoted to the idea of commission only, then the salesperson should get an existing book of business that pays a decent living income. Unfortunately, most business owners balk at the concept of paying “again” for existing customers. In a vendor relationship, however, keeping the client is just as important as getting a new one, so why not have incentives for paying attention to the current book of business?
For the same reason vendor salespeople are more likely to get residual income. They can build their wages by growing the overall book of ongoing business. Supplier salespeople should be paid on what they hunt today- period.
How can you tell if you are a supplier or a vendor? Try this questionnaire.
- Do you have a contract to provide products for a specific period of time?
- Are there regulations that require special effort to change providers for your product?
- Do you have exclusivity? Are you the only supplier in the territory? Are you the only authorized repair or service facility? Does a warranty depend on using you?
- Are there barriers to exit? Would changing vendors require an outlay of time, effort and money by the customer before a new vendor would be effective?
If your answer is yes to any one of these questions, you are likely a vendor. That doesn’t mean that you can relax; you still have to provide customer service and quality to survive. In some ways it makes your job harder.
If your customers have a vendor relationship with you, then it is more likely that those who aren’t your customers have a vendor relationship with someone else. That relationship has to be weaned away, and the objections to change overcome before anyone makes any money. Your incentives should take into consideration how long it will be from first contact to opportunity to delivery to payment when you think about sales compensation.