Sales Compensation

By Sam Boyer

The primary expense for all beer distributors is payroll.  Control payroll and you control almost all the other variable expenses of your operation.  Beer distributors that control payroll and manage it effectively will maximize both their sales and profits.

Managing your payroll dollars effectively to compensate your sales personnel is more than a 100% commission system.  Selling beer is not like selling used cars.  Beer distributors can only sell to licensed retailers and you have exclusive territories.  If your sales personnel skip retail calls...the retailers call your distributorship…and demand a delivery.  If a used car salesperson does not close the sale…the customer does not come back.

A beer distributor’s sales are more stable and predictable than used car sales.  Therefore, a 100% commission system within a beer distributorship is really 95% salary and 5% commission.  Very similar in performance to the 100% commission system is the paying of your sales personnel a salary that is supplemented by only supplier incentives.  This approach promotes individual packages through distribution incentives; it also promotes placements that may not be appropriate for specific retailers and it does increase out of date product.

Beer distributors that manage their sales payroll dollars effectively have compensation programs that use a combination of salary, commissions, and distributor based incentives.  The ideal balance between salary, commissions, and incentives is approximately 40% salary, 40% commissions, and 20% of total income from incentives.  Variances from this ideal are expected, however; the 20% of total income tied to incentives is critical if management really wants to use compensation as a tool.

Incentives are the tools management has to focus the sales personnel on the products and brands that will drive growth.  Without a well structured and managed internal incentive program for the sales personnel a beer distributor will struggle and sales will falter.

What types of incentives?  Well, incentives that will promote each family of brands and/or market segments that require attention are a good place to start.  Look at the business plans you have submitted to your suppliers.  If you submitted a plan to increase sales by 1.0 percent for brand “A” then your incentive system should be structured to support this plan.  This approach rolls your business plan commitments down to the sales staff.

As an example, this support could take the approach of $200 per month incentive for your flagship brand and $100 for the remaining packages of that brand family.  You also have to consider all segments within your market.  Ask yourself, what segments, if we put extra effort into them will yield increased sales?  An obvious segment is the on-premise.  Often, when analyzing compensation systems, no incentives are present to enhance the on-premise segment.  Could this be the reason for the nationwide downturn in on-premise sales by all major suppliers?

Other segments can also be the focus of incentives; convenience stores, in many instances, require additional effort to improve sales.  Convenience stores so often turn a good salesperson into an “inventory clerk”.  They typically have a shelf set that cannot be changed.  However, the degree of execution within a convenience store can still yield additional sales.  Just because the authorized display calls for a minimum 10 case display does not mean only 10 cases.  Plus keep the display up as long as possible, perhaps even past the “authorized” time period.  Space in a convenience store is a premium; if your salespersons have the space tied up…your competitor does not.  If your sales incentive system encourages this…it will happen.

All the above discussion is focused on volume goals for a set period of time.  There is another element to effectives sales compensation that must be considered.  In-market retail execution is a critical aspect of every salesperson’s job.  If you have effective retail execution in the market by your salespersons, and your product pricing is in line with your competitors, you will be a formidable opponent, regardless of your brands.

An effective retail execution program is the ongoing evaluation of a salesperson’s actions against a set of established standards.  These standards, as an example, can take the form of “Ensure all displays within your accounts include the applicable seasonal POS”.  This is just one of perhaps 30 to 40 scoring standards for each salesperson.  The total of this scoring against the pre-established standards produces an incentive payout for those who execute in the market.

Extensive use of incentives for new placements could actually be counter-productive.  It is in a salesperson’s best financial interest to make sure they achieve the maximum number of new placements of the products that are covered by the incentive.  However, this can be done at the expense of the packages already carried by an account.  Retail accounts have a fixed amount of space for your packages.  Typically, if a new package is sold to an account, an existing package is taken out.  The net effect is the payment of incentive dollars to a salesperson for no change in the total number of placements.  This may not only cost in incentive dollars, but the package removed from the retailer’s shelves may be a better selling package than the new one. 

The use of volume goals for your flagship brand or for all the brands of a supplier forces the salesperson to make sure the best selling packages for that account are in the account.  This will maximize your sales and protect your brands long-term.

Your current monthly incentive programs likely focus on individual packages and display building.  This is understandable; your suppliers promote these programs.  You would be better served by implementing a quarterly volume incentive program for each of your primary suppliers or brands.  This type of program requires the salespersons to sell all packages in order to achieve their incentive pay.  They cannot obtain their incentive pay just by attaining sales on a small number of packages.  All beer distributors must do more to promote full-line selling.

Making the incentive period a quarter in length requires the salespersons to work on selling the entire product line the entire length of the quarter.  This longer time period does not allow for “stuffing” an account at or near the end of the period.  If the salespersons do not promote the entire product line throughout the quarter they will not be able to make it up in the last few days.  This is now possible with individual monthly package goals.

Beer distributors have for many years allowed their suppliers to dictate their compensation and in particular, how their incentive systems are structured.  Your suppliers are just that, your suppliers.  Work with them to ensure the betterment of both your business and theirs; however, do not allow them to dictate how you compensate your sales staff.  Beer distributors have to take more control and responsibility for their sales compensation.  It’s your business and sales compensation is the fuel that makes it run.  Make sure you have the highest-octane fuel available.