Getting EMS Sales Commissions Right
By Jake Kulp, Founder at JHK Technical Solutions
Besides forecasting, is there anything harder to understand and execute in the EMS industry then sales commissions? I hated being on the leadership committees trying to institute a single sales commission plan that fit our entire sales force. Here’s why…..
Most EMS companies are pretty thin at corporate staffing and tracking the sales / demand creation function can be cumbersome. Because of that, it’s important that commission plans are easy to calculate, are understandable by those that manage / receive it, and is fair to both the sales person and the company. There are many elements at play that make this hard to do.
One of the facts about this difficult aspect of running an EMS business is that we are in a highly competitive space with relatively low margins since our strength is building other companies IP. What is a fair reward for finding, developing and driving a win at a new account, without becoming non-competitive?
How long should a new business salesperson be compensated for driving that new win? If the goal is to have the business office take over the daily management of the account, when should some reward be shared by that program management lead? Many EMS companies struggle with establishing the clarity of roles and responsibilities between sales and the business office and can sometimes be left up to those offices to figure each account out.
Many larger EMS companies have differentiated sales territories. Do you have someone calling on markets with a very long gestation cycles like aerospace/defense and medical? Is there a territory where the new business development person needs to stay closer to the newly won account then normal in support of the business office? Is the assignment a vertical / strategic territory centered on one multi-national account, requiring that person to be much more strategic then say a regionally based salesperson. Is the sales territory a development territory where a regional EMS is trying to expand into a new geography where their brand is an unknown? Is the EMS salesperson tasked to fix a broken and bad reputation the EMS has earned over years of mismanagement? There are any number of territory types that produce vast differences in sales territory structures.
What does an EMS do that has based their demand creation activity on a hybrid sales force using regional direct sales people and a bevy of indirect (manufacturer reps) to find, develop and land new accounts? How far can we spread the commission dollar between multiple sales functions? The rep introduced the account to the EMS but receives extensive sales support from the direct sales person through the entire sales process. How do we offer a fair commission to each and not impact our competitiveness?
What about the larger vertically integrated EMS that has divided their manufacturing competencies up into commodity sales functions and could have more then one salesperson calling on a giant multinational OEM; trying to sell them PCBAs, metal, plastics, cables, and/or PCB’s? Many of these larger EMS companies claim they do not margin stack (which is a separate discussion) and if true, isn’t there a risk of commission stacking?
Some plans try to measure the size of deal with its profitability as part of the commission equation. Since the profitability largely depends on how the job was bid, how the EMS buys material (making up the largest % of any jobs COGs), and the on-going pristine management and execution (quality) of fulfilling the PO’s; is this a fair measure of the sales persons ability to bring in deals that fit? Since most EMS don’t let the sales person actually bid the job, and none let them strategically buy material or run the manufacturing lines; how appropriate is a profit equation other then saying “sales is a high-level position in the company and should be measured like other high-level executives”. If the sales person shares in the financial perks enjoyed at the executive level, then maybe this is reasonable. If not, then it is a hollow justification and a poor sales measurement / reward.
How do we paint a complex sales force with differentiated territories, with the same commission paint brush? I suggest you can’t or shouldn’t. Most of my posts have a long experienced based answer to any of the questions I raise. I usually add a “call me for some help” at the end of my EMS industry articles that may that may keep EMS executives up at night. Please don’t contact me about commission plans, they just make my head hurt.