Matthew Tyner (@MatthewTyner) is the Vice President of Marketing for Valve + Meter (www.valveandmeter.com). In this episode he answers important questions about doing business in the digital world: What does a winning digital campaign look like? How should home service business owners allocate funds for their on-line presence? Which digital media are delivering the best returns? And many, many more. This is Matt’s second interview and his expertise is on par with the best. Enjoy!
I recently listened to a human resource manager restructure the compensation plan for a group of salespeople. “Sounds like I’m going to make less money next year,” someone said. I watched the two top salesmen dust off their invisible resumes. I’ve seen owners use everything from Apple watches to vacations in an attempt to improve sales performance. Many owners and sales managers feel that salespeople thrive under straight commission compensation plans. Most of this, however, is a combination of collective wisdom and “hey how do you pay your guys?” conversations. Over the last 30 years, however, a great deal of mathematical and behavioral economic analysis has contributed quantifiable recommendations as to which compensation plan most effectively improves a firm’s profitability while reducing the uncertainties and asymmetries influencing the effort.
I have read and relied heavily on a number of expert sources for this blog:
Salesforce Compensation Plans: An Agency Theoretic Perspective; Basu, Lal, Srinivisan
A Study of a Class of Simple Compensation Plans; Basu, Kalyanaram
Optimal Incentive Plans with Imperfect Information; Grossman
Salesforce Compensation: An Empirical Investigation of Factors Affecting the Use of Salary versus Incentive Compensation; John, Weitz
I recommend all of these for anyone interested in further research.
Compensation plans don’t exist in a vacuum. There are variables involved in developing a compensation plan that need to be considered:
- The selling environment is uncertain as is the salesperson’s effort.
- The salesperson may be accustomed to a given compensation plan and may be asked to switch from a previous to a current compensation.
- The salesperson is risk averse. Although many stereotype salespeople as having a high level of risk tolerance that typically isn’t the case–they value security and will stick to what works in the interest of avoiding risk, a lack of self-preservation, an economic change in their quality of life. Sales people are best characterized by “The Happy Loser” archetype as found in Clotaire Rapaille’s research.
- Sales is stochastic rather than deterministic profession.
Compensation plans must also account for various internal uncertainties effecting a salesperson’s effort. Marketing, for example, is an uncertainty. Is the firm’s marketing plan on-going, sporadic, promotional? Are competitive marketing efforts more robust? Does the firm allocate sufficient funds in order to generate consistent opportunities for salespeople? Do selling technicians impact opportunities? Is there a lack of transparency between the sales manager and the sales team? These and other variables should be considered as the compensation plan has a specific goal: Maximize a firm’s profit. Considering external and internal uncertainties, owners and managers then determine the compensation plan.
There are four fundamental types of compensation and incentive plans:
- Straight salary
- Straight commission
- Ala Carte: the salesperson is able to select his or her own type of compensation plan, typically reflective the salesperson’s risk tolerance (Gonik 1971)
Straight salary compensation plans are best applied when the selling effort involves a team. Straight salary compensation plans appeal to security oriented individuals rather than achievement oriented individuals. And while straight salary compensation plans are easy to administer there is a drawback. This type of compensation plan results in “the total inability on the owner or sales manager’s behalf to provide the strong motivation that induces high performance” (Basu 1985). I’ve worked with firms that relied on a straight salary commission plan. The salespeople were happy, the owner believed that every employee deserved stability, and that sales people would do the right things for these reasons. He was correct in his thinking on the first two outcomes. Less so on the final outcome–specifically pertaining to new business results.
Straight commission compensation plans are perceived to be fair. Over a period of time good performers are rewarded while poor performers are discouraged. But there are limitations to straight commission compensation plans in both B2B and B2C settings. Salespeople will be hesitant to spend much effort on opening new accounts, administrative duties or other activities perceived to be not financially rewarding (John, Weitz). In B2B selling this is evident in insufficient prospecting activities that are not viewed as a priority because they don’t reward the salesperson. In B2C selling this often results in poorly assembled job packets, a lack of customer follow-up, and lackluster reporting efforts on the part of the salesperson. Finally, straight commission plans are unstable. Market uncertainties, inconsistent marketing efforts, economic or seasonal shifts, and aggressive competitive tactics challenge risk-averse salespeople with financial uncertainties.
Contests are a form of compensation. Contests, games, and rewards are intended to raise a salesperson’s effort for a short period of time. Contests are also used among field teams for the same reason. Unfortunately this type of compensation has a flaw: the best salespeople typically win while the lesser salespeople fail to improve their effort or, worse yet, slacken their efforts.
Ala Carte compensation plans allow salespeople to select a compensation plan that satisfies their risk tolerance. Highly risk averse salespeople are likely select a salary while risk tolerant salespeople are likely to select a straight commission based compensation plan (Gonik 1971). I’d like to point out that this this conclusion preceded current Agency Theory research. I work with a company using this compensation model. It accomplishes the goal of meeting individual requirements. It does not result in a consistent effort across the sales team. This model also results in an element of unfairness as salary based salespeople are less impacted by market variables while maintaining an income while others are susceptible to inconsistencies.
In theory the compensation plan that best protects a firm’s profit is one in which a salesperson is guaranteed a salary only when the firm’s profit goal is met and a commission only when the firm’s goals are exceeded. If the goals are not met the salesperson does not receive any compensation (Grossman). In reality, however, there are obvious problems. Firm’s who are profitable some months and not profitable during others risk losing salespeople to competitive offers.
The compensation plan that is most accepted combines a salary and a commission. However, the salary and the commission rates must be based on a realistic assessment of the role that a salesperson plays in the sales cycle. Should the salary be higher or lower? Should the commission rate be higher or lower? Basu and Kalyanaram recommend the following considerations when determining a salary:
For example, a salesperson’s salary should be lower if their “personal skills in making sales” is “considerable” and the salary should be higher if their personal skills only slightly contribute to the sale. In the trades, a market in which product parity is widespread, the salesperson’s salary should be lower. If the salesperson’s product has a distinct advantage over competitive products then the salary should be higher and the commission should be lower. If there are important factors beyond the control of the salesperson’s influence then the salary should be “slight.” This is important in that revenue producers play a significant role in the firm’s net profitability. As well as determining the current salary level given the above variables, owners must also determine the correct commission levels.
Sliding scale commission rates are less effective that fixed rates (John, Weitz). Consider product mix, for example. Risk averse salespeople are more likely to sell less profitable projects despite the fact that their commissions increase with higher margin product sales. They reduce their effort accordingly (“something is better than nothing”). In turn, this makes it more difficult for the firm makes less money. In the trades we see this in a consistently imbalanced unitary mix. Sliding scale commission rates are also more difficult to administer. Fixed rate commissions based on net profit provide the truest compensation for effort.
Commissions based on gross profit are less effective than commissions based on net profit. This is particularly true in B2C sales. Gross profit commission plans relieve the salesperson from accountability regarding application errors, parts and material omissions, labor overage caused by hasty or poor planning. In other words, the salesperson is paid regardless of any intentional or unintentional oversights. Owners and sales managers then have to determine any deductions, communicate these deductions, and negatively impact the risk averse salesperson’s future effort.
Owners and sales managers should determine the appropriate salary level as well as a fixed commission rate based on net profit.
Risk averse salespeople want security and stability. Compensation plans must be easy to understand. I often ask salespeople how they are paid and I often hear: “I really couldn’t tell you.” The goal of a compensation plan is to maximize a firm’s profit given the salesperson’s effort. This effort is best ensured when the salesperson understands how he is paid and therefore how he should best exert himself.
Zig Ziglar was quoted as saying “Timid salespeople have skinny kids.” He’s only partially correct. Is the firm providing sufficient selling opportunities? Does the firm invest in training? Are market conditions uncertain? Does the firm respond to competitive adjustments proactively or reactively? Is the salesperson the right fit for the job? And if he is then is the compensation plan creating the right results? A firm’s sales compensation plan should maximize profit while reducing as much uncertainty as possible. Yet many owners and sales managers determine a compensation plan through arbitrary methods and then wonder why the team isn’t performing at or above expectations. Why won’t they sell more high-efficiency products? Why won’t they sell more accessories? Why does salesperson X always make layout related mistakes while salesperson Y acts like a project manager? Why won’t salespeople spend more time prospecting? Why do salespeople stick around for just enough time to find a better job? The mathematical and behavioral economics suggest that the right compensation plan will significantly reduce these uncertainties while extracting the right efforts from risk averse salespeople.
The advertising research firm Capgemini, projects that voice-based shopping will exceed $40 billion by 2022 across the United States. This isn’t a surprise. What is remarkable, however, is the difference between the way consumers conduct a voice search versus a standard text search:
Based on research conducted by AdAge magazine: “70 percent of the keywords used when searching with voice are different from those used with text, and people are 60% less likely to do a brand search using voice.”
In other words, businesses are going to have to completely re-think how they market to voice-search consumers. AdAge further adds, businesses “must be talked about, mentioned proactively, and demanded. This is what it means to be ‘tip of the tongue.'” Ironically this may include a re-consideration of the role and purpose that legacy advertising plays in small business marketing.
A business is more likely to win at voice search when they’re a tip of the tongue recollection. Quickly recalled brands are asked for 30% more than lesser known brands. Not that long ago some people in the industry (myself included) cautioned against the dwindling efficacy of direct mail bundles, billboards, radio, and television. In a voice-search world, however, targeted direct mail pieces remain a fairly low-cost way to make lots of impressions on an ongoing basis (a mail piece shaped like Alexa would be cool). A company that consistently sends well designed mail pieces is at least attempting to proactively put their name in front of as many potential customers as possible. Well designed billboards placed at well-trafficked locations, a catchy radio, Spotify, or Pandora jingle, a sponsored television spot can create impressions that result in tip of the tongue awareness. Ever had a jingle stuck in your head? That’s what I’m talking about.
Brands should work hard to become part of a cultural conversation. Nike accomplished this recently and to tremendous controversy (and huge sales). It made me think of Oscar Wilde opinion: “The only thing worse than being talked about is not being talked about.” On a smaller and more affordable scale businesses should look for ways to embed themselves in their communities. Good will gestures, community involvement, special events, and sponsorships allow for valuable business-to-community-to-culture connections that send the right messages on a repeatable basis. On an even smaller scale, businesses that continue to take advantage of full home service offerings have a myriad of opportunities to stay connected to loyal customers. Small businesses will have to pursue a new mandate: identifying and connecting multiple business-to-consumer interactions, holistic data collection, and a customer-centric CRM. Businesses must learn to become essential to their customers and their communities.
Lastly, businesses can create a tip of the tongue awareness by creating a well planned series of positive impressions during the sales, installation, and service cycles. This is often referred to as the user experience (UX) and is something I’ve written a great deal over the years–that the quality of the experience and the likelihood of a referral go hand in glove. People are hard-wired to pay attention to positive experiences: it’s Positivity Bias. Businesses should consider the small ways in which they can systematically put a genuine smile on a customer’s face. These are intentionally designed touch points that the customers subtly notice and recall later. Voluntary, positive referrals are the result of a design process.
You have to make enough positive impressions that people automatically recall your company and talk about your company as if it were a fixture in their lives.
We’re playing by a different set of rules that are almost completely different than standard text search. Alexa will select your company because your user experience keeps people talking about your business (in a good way) and if you are embedding your business in your customers’ lives rather than conducting business transactionally. You have to become the Band-Aid or Kleenex of home services in your market. That starts by proactively making lots and lots of impressions. Maybe it’s time to re-think a brilliantly designed direct mail schedule or dust off that jingle that you shelved. Perhaps your remaining co-op dollars are best spent overlooking a busy intersection! It’s definitely time to prioritize a fantastic user experience! It feels like everything old is new again as Alexa becomes that friend you always turn to for a recommendation.
Last month Google announced a significant algorithm update. They are calling it the Medic Update. Here’s a link if you’re interested in learning about the implications that this update may have on your business’ website:
Ostensibly these changes are targeting health and wellness sites as well as YMYL categories. Nonetheless, Google is recommending that you continually strive to maintain a website that creates an enjoyable, engaging user experience. The trades have typically struggled with this for a couple of reasons:
- We expect too much from template web sites with limited customization–resulting in parity among contractor websites.
- The site builder usually doesn’t know much about the trades and they look to you for content (or they just copy-paste from similar sites in the interest of saving time). This misses the point: The audience’s perspective is the one that matters.
As a result it’s common to find HVAC or plumbing websites that look and feel very much the same: About Us, FAQ, Our Products, Our Services . . . (don’t get me wrong, these are important but it’s the perspective, creative capacity, and content quality that matter).
That being said, and given Google’s changes, here are a few things a business owner can do to improve her company’s site:
- Ask your web/SEO provider to ensure your short and long-tail keywords are up-to-date and unique to your market.
- Take a look at Google’s Keyword Tool (https://ads.google.com/home/tools/keyword-planner/) to help focus your keywords.
- Talk to your web/SEO provider about Topic Clusters (https://www.forbes.com/sites/forbescommunicationscouncil/2018/04/12/build-topic-clusters-to-change-content-architecture-for-top-rankings/#59598d2353d5) and the extent to which your site is using them well.
- Set up a blog or vlog and produce content on a regular basis. Once a week is good.
- Stay current. I like SEOmoz and Google’s blog for updates.
- Make sure you’re getting what you pay for. SEO providers collect their monthly fee but are you getting monthly improvements or are you paying for general maintenance?
The thing that all of us need to constantly think about is the customer experience. Anyone who shops on-line with regularity is having a trusted and engaging experience with a website. Amazon, Patagonia, REI . . . they all get this and do it well. What can you learn from their web experience? Have you asked your customers what they like and dislike about your site, how it can be improved or made easier to navigate? The Experience is the product these days. The experience is a multi-verse and that includes our business websites.
Enjoy the the article in the link above. Schedule a meeting with your SEO provider. Consider your customer’s point-of-view. How is your site more engaging that your competitors’?
“To teach is to learn twice.”
The majority of B2B sales professionals that I work with have never sold their products to a homeowner. They have a limited understanding of how their products are sold, and that’s a liability. In order to gain a complete understanding of their sales cycle I recommend that they accompany their customers on B2C sales calls. It provides a better understanding of the entire sales cycle as well as the real-world challenges and opportunities their clients face on a regular basis. Anyone interested in improving their sales performance benefits from credible coaching–IF the coaching is structured.
As of Monday there is a brand new coaching guide and template for outside sales professionals who want to add value to their client coaching/ride-along opportunities!
The guide and template are on the Premier Client Learning page on my website: www.arrowandfletching.com.
Thanks for your support and enjoy the new resources. Also, look for new great content on a weekly basis.
“A bird that you set free may be caught again, but a word that escapes your lips will never return.” — Jewish Proverb
Another terrible week. A domestic terrorist killed 11 people while they were praying. “Kill all the Jews!” he shouted as he opened fire.
In the same week a man killed two people in Louisville after failing to gain access to a predominantly black church.
In the same week a man attempted to assassinate individuals whom he’d targeted as “enemies of the state.”
In the same week the Department of Health and Human Services began dehumanizing members of the LGBQT community.
I remember when politics was Elephants vs. Donkeys, blue versus red. Simpler times.
Something has gone terribly wrong. How we talk about it matters.
In society and in business, allowing hate speech to go unchecked makes is openly permissible. Far worse, it makes it tacitly normal.
Leaders who allow this to happen are not leaders. They are perversions of leadership.
Elected leaders who allow this are not real leaders. Business leaders who allow this are not real leaders. Community leaders, church leaders, coaches, teachers, mothers, fathers. You. Me. What we tolerate and the words that come out of our mouths say something about our character, maybe our souls.
Without real leadership The things that we allow to be permissible can metastasize in to nightmares.
Real leaders find the best in people, urge them toward excellence, motivate them toward “the better angels” of their nature.
I am aware that this is a complicated problem. The Klan has been around for a long time–it’s always been there. I prefer it to remain marginalized.
We have to de-normalize it. Society has to say: “You’re wrong. Cut it out.”
Whether we allow racism, anti-semitism, or xenophobia to live in the open is an open judgement on our society.
Matthew Tyner is the VP of Marketing for Valve + Meter. His company creates expert SEO and digital strategies for the trades-based businesses. More importantly, he’s about as down-to-earth a guy as you’ll find out there. In this interview Matthew and I talk about social media, SEO, and how Valve + Meter helps customers win in the ever-evolving digital world. Tons of expert insights and recommendations in this interview. Hope you enjoy it!
“People don’t buy two-inch drill bits, they buy two-inch holes.” — Thomas Levitt
Insight selling is an adequate model but it runs the risk of parity. In that setting a salesperson educates, collaborates, and then tries to persuade. It also tends to result in organization-centric solutions (“My close ratio is too low.” Solution: “Sign up for our training program.”). As well as gaining valuable insights, high-performing sales people should put greater emphasis on the outcomes that his or her customer is striving to attain and why they choose to work with you, your products, your company.
I recently purchased an old school Nintendo with two specific outcomes in mind. Friends were visiting for the weekend and their son loves old school games. My reasons for the purchase included giving the young guy something to do and that he enjoys. Also, I wanted to win a little more kid-free time for the adults. Others might purchase the same gaming system out of nostalgia. Still others may purchase a Nintendo because of the price point. In my case the product satisfied the specific outcomes. When a salesperson understands the outcomes a customer wants when choosing who to work their ability to improve specific aspects of service or product performance increase. A salesperson’s decisions become outcome based rather than information based.
Creating an outcome based value proposition means salespeople need to understand why their customers do business with them (or as Clayton Christensen describes it, “Why they hire you”). In lieu of habit or a revolutionary product innovations the reasons are most likely outcome driven. A HVAC business owner may supply the information and insights that a salesperson is requesting. The same owner may be intrigued by an idea or a collaborative process. However, neither of those considerations may be the actual reason he opts for one supplier while rejecting or ignoring others. An owner may select one supplier over another because his ideal outcome is improved operational efficiency–and that is his primary goal. Regarding products, an owner may prefer one supplier over another because of better packaging and reliable inventory. A third owner’s desired outcome may be positioning the business for a succession plan. The variety of outcomes are as multi-faceted as a Starbucks coffee menu. Ultimately, business owners buy progress over products–it is up to the salesperson to understand the unique outcomes that an owner defines as progress.
This exciting sales model poses an obvious challenge: A business owner’s desired outcome may be outside of the sales person’s skill set. Outside salespeople are going to have to build trusted talent networks in and outside of their organizations. They must commit to continued learning or else they will fall far behind the middle of the bell curve.
I’m writing this from our local library. I come here for some peace, wi-fi, and to wander the stacks. There are a few moms, dads, and kids nearby. They’re here to play and listen to a story. There are three high school students sharing a table nearby. I’d like to think they’re working on academics but they might also be skipping school and hiding out. We’re all using the same product and services but with different outcomes in mind. The library would increase the frequency of my visits if they promoted “Your office away from the office.” The families might increase their visits with a published events newsletter than celebrated the reading and activity schedule. The high schoolers? Maybe the message is “Remember your favorite hide-out as a kid?” All of us using the same product and services for with different outcomes in mind.
As a salesperson, if you want to lever simple insights then look past the conversations about education and collaboration (“teach-tailor-take control”) in language of The Challenger Sale. Instead, combine them with an understand as to why people prefer your company, why they “hire” you, and most importantly: the outcomes that your customers are looking for. Then improve your efforts accordingly.
“The only thing worse than training your employees and having them leave is not training your employees and having them stay.” — Henry Ford
When it comes to my company I’m not usually one to beat my own drum unless there’s something happening that is really helps my friends and customers. To that end, I’ve recently finished two new projects and I’m proud of the results. I’d like to tell you about them.
The Premier Client Learning Center!
I am a research junkie. I’ve always believed that worthwhile coaching is only as good as the data, delivery, and deliverables that compose a class.
There are always questions following a training class: “Where do I start?” or “Where can I find that form that you referenced?” or “Can I get a copy of X?” Beginning this fall the Premier Client Learning Center is the “go to” location for the forms, templates, articles, and research that are source and support material for my coaching. The first two uploads included a call planner and a territory business plan template for outside sales professionals. The next phase of uploads include comprehensive prospecting materials. Visit my website http://www.arrowandfletching.com to check it out.
For B2B professionals, your results will improve and you’ll be able to build a credible selling story by sharing expert opinion. You’ll also be able to organize your calls and structure your territory more effectively. It’ll make it easier to do your job.
Smart companies invest in their people. For some reason, however, outside sales teams receive the majority of training while inside/csr/branch managers are rarely given the coaching needed to improve. Ironically, amazing branch service is proven to improve sales and customer loyalty.
Beginning in 2019 I’m offering 10 well produced, information rich, and expertly supported Customer Service Representative coaching sessions in a streaming format or a completely recorded format. Here are the benefits:
- Companies with hundreds of CSR reps over multiple locations can train their team at scale.
- Medium and smaller sized companies that cannot take their teams out of the branches can still provide sales and customer service training at their convenience.
- Accessibility improves when training functions across all devices and platforms.
- Companies will save money on expenses: travel, lodging, time away from their branches, as well as the cost of lost opportunity.
- CSR Livestream training modules are efficiently planned at 20-30 minutes–easily attended during a morning team meeting or at lunch.
- Companies have two viewing choices: live-streaming allows the attendees to interact, ask questions, and engage their colleagues; recorded content allows them to view the content when it’s most convenient for their teams.
- Each of the 10 training modules includes a support workbooks that will downloaded from my website.
- Finally, and I think this matters, the production and set quality are cool. It’s not like watching someone read a power point from an office. That’s a turn off. We emphasized design in order to increase engagement.
CSR Livestream is one of the most enjoyable projects I’ve worked on and I’m very excited to offer it you for 2019.
So that’s what’s happening with my company. The website is now a learning center and the CSR Livestream product includes a ton of benefits that I hope you’ll enjoy.
As always, Arrow & Fletching doesn’t exist without my friends’ and clients’ support. I hope you’ll like my new approach to customer support and coaching. Thank you.
In as much as I frequently listen to concerns about “not being able to find good people” and in as much as I largely support trades-based education, the industry is learning to look inward critically and ask ourselves: do we clearly communicate a career path that includes specific performance benchmarks that move an employee forward? Do we have defined company cultures that are inclusive, cause-based, and well-communicated? Pertaining to the recruiting process: Are we failing to attract the right candidates because we don’t understand the difference between a job description and a job posting?
Job descriptions and job postings may sound similar but they perform distinctly different functions. Here’s an example of a job description:
Common stuff. The problem is that things like Duties & Responsibilities in and of themselves aren’t really selling the job–making it attractive or encouraging the right people with the right attitudes to apply for the job. Job descriptions:
- Are internal
- Outline the duties and the responsibilities required to complete the job
- Clarify management accountability
- The salary or compensation plan
In contrast, job postings are designed to sell the position to the right candidates while simultaneously weeding out poor fit candidates. Here’s a sample job posting:
It’s catchy, narrative, fun. The job posting includes a cultural snap-shot as well as a broad overview of the role and the type of person who will win in this role. By way of comparison a job posting:
- Is external, a candidate facing document
- Is designed to engage the reader
- Is designed to capture the interest of the right candidate through specific content inclusions
- Offers a glimpse in to the company culture
- Written in a way that it stands out from other “help wanted” postings
The distinction between job descriptions and job postings are subtly obvious and important to the outcome. Finding people is one thing. Finding the right people is altogether another. And when labor is hard to come by and the cost of training is high (and the cost of replacing an employee is even higher), something as seemingly simple as a well written job posting may help find the best talent and screen out the wrong candidates.
Have a good one!