It is a more profitable system to determine, in advance, what is your highest margined product/service and be sure that there is enough goal to ensure that the salesperson focuses the right amount of attention on that segment. An example would be:

Product A: 55% gross profit

Product B: 45% gross profit

Product C: 35% gross profit

If Product C is “easier” to sell and your salesperson only has to reach that dollar goal, they will naturally lean towards selling Product C. However, if they have to have a minimum dollar sales of Product A, they will be encouraged to sell more of this product in order to qualify for their commission.

Along with this, it is critical that retention be built in whenever possible. This could be accomplished by paying the salesperson a residual incentive for retaining clients they brought in. This could also be managed by profitability goals. This would show that the company’s net profitability for this salesperson’s portfolio is growing. It doesn’t benefit a company to have a “super” salesperson who doesn’t retain clients because sales are probably their major focus; and therefore the new sales only marginally cover lost business.

Net/net, the company loses money in this scenario because they are paying a salesperson when the net profitability doesn’t increase enough to even cover the commission. The average cost to replace an existing client with a new one is 3 times the cost of retaining one!

Finally, it’s okay and even advisable to have qualifiers in your plan. Your sales staff have to adhere to things like representing the company’s vision and mission. They have to be a team player, closing a sale generally involves working with others in the company. If you have someone that loves to go out and bring in the business but can’t work well with those that actually have to get the backshop part of the process done, the system breaks down. You may think of other qualifiers that will ensure that you have an all around star employee, internally and externally.

Commission sales can propel your company forward, hopefully this will help you hire the right sales people to ensure the overall success for them and for you.

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Is this the time to start a new business?

Having been a banker for over 35 years, I can tell you that some of the best companies were started during a recession because they addressed a need during an economic downturn that continued to be successful even as the economy rebounded. One such type company is the employee placement companies. When companies have to downsize and cannot keep on skilled individuals on a full time basis or pay them benefits, then employment agencies are an ideal answer to meeting the needs of completing a job without their having to have a full time employee. When the job is done, the temporary employee is returned to the agency until needed again.

When I would lend money to businesses, one of the areas I would review is the company’s ability to withstand a recession. What was especially effective was a company’s ability to expand and contract according to impending business. Another would be if they were in a commodity market where they sold a high priced product that was discretionary and therefore would have difficult times during an economic crisis.

If you are starting a new business like Lola Kakes did with EffortlessHR, have you considered it’s relevance in a recessionary market Is your product affordable, does it fill an important niche such as being an alternative to a higher priced product or service out there. In the case of EffortlessHR, timing works because it is an affordable product, internet based, starting at as little as $24.95 a month.

Why does this work Because it helps small business owners to replace what some business owners are spending hundreds of dollars for in HR processing and employment management and retention. That makes sense.

A very good example of an existing company taking advantage of the difficulties of one of the kind of companies that has a high priced product, is McDonalds coming out with a premium coffee that is half the price of Starbucks. Brilliant timing! Many are saying, I’ll have McDonalds during the week and treat myself on the weekend to Starbucks so I can put gas in my tank.

What is your idea?

Considering how much you’re spending for gas and food right now, would you spend money on what you’re proposing to sell?

Would it work now and when we have an upward turn?

It is especially compelling if you were in corporate America and was laid off and said to yourself, this is the time to go out on my own. While that is true and the majority of businesses being started today are small businesses, be sure you have the right ingredients for success in this economic environment.

Also see our friend Chris Brogan’s article on how being a small business is a weapon and Seth Godin’s great article on why small businesses should not whine.

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The best way to ensure this is in the budget process.  List all costs associated with an employee so that these costs can be accumulated.  Often, on a Profit & Loss Statement, costs can be designated in different areas such as Labor is seen in Cost of Goods Sold, Payroll Taxes and Training in Sales & Adminsitration Costs.  This does not allow an owner to see a complete picture of employee costs.  Understanding the true cost of an employee should be a critical component of the decision to retain or hire employees.  This review of employee costs will really will open the eyes of a business owner.  And just as importantly, employee retention will lower the cost of employees because it can cost between 1to 5 times the annual pay of an employee to replace them. Wow, that is significant!

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Here is an example:  An owner spends 2 hours on sales netting an average of $200 per sale or $400.  They then spend 3 hours on data input and scheduling.  If that same owner paid a clerk $36 for those 3 hours plus employer taxes for a total of $48, this would have netted the company an additional $252 for that 3 hour period.  Continue that through the week and month and you can see there is an opportunity to significantly raise revenues and/or reduce costs.  Alternatively, a portion of the saved time could be used on customer retention which is critical to a company’s longevity and controlling costs.  The cost to bring on a new customer versus retaining one is about 3:1. 

These are important considerations when hiring a new employee.  In all cases, the bottom line should be positively affected by this action.

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