The cost of sales

During uncertain economic times, companies have to find ways to save on overhead expenses without losing revenue. For sales performance management (SPM), frugality means maximizing every prospect and reducing the cost of sales. Budget cuts involve a difficult line for supervisors to walk – agents are frustrated by financial changes.

To cut sales costs, vendors must consider first consider how they can maximize the earning potential of their representatives. Often, managers have to develop compensation solutions that motivate employees to pursue leads and don’t cause internal frustration.

Salary cuts
One of the most common cost-cutting tactics is department-wide salary cuts. Payroll is often one of the largest expenses for a company and, short of layoffs, it’s the easiest method to reduce overhead. Michael Ahearne, a marketing professor from the University of Houston, recommends not reducing salary for the best sales representatives.

“[It’s] better to lose the people not producing for you. Don’t punish everyone across the board. Keep the pay up for top performers and turn the dogs loose,” Ahearne told Inc. Magazine.

However, salary cuts can exacerbate budget problems – agents sometimes quit when their pay is changed. The cost of hiring personnel and putting trainees through sales on-boarding is usually more expensive than maintaining the current payroll. An analyst told the news source that it costs $27,000 to train a new employee, and $70,000 worth of productivity is lost during the transition.

Contests
Ahearne believes that contests are the best sales incentives for maximizing revenue without adding overhead. He told Inc. Magazine that it’s better to make salespeople compete with each other than with the volatile marketplace, and that shorter contests are easier to control than long-term bonuses.

“We’ve found shorter contests are generally more effective and financially less risky,” Ahearne said.

Gamification software can make contests even more effective and streamline analysis for managers. Applications can be customized to include real-time updates so that supervisors and representatives know where they rank in terms of sales. Companies can decide to use actual figures or convert their data into points to create a fully automated game.

Additionally, the programs add interactivity to a sales contest. Employees can monitor their results and find areas of improvement so that they don’t have to estimate how their numbers are stacking up with the competition. Perhaps most importantly, gamification software often reduces the time it takes for companies to pay out rewards.