About the Author
The President of ChannelCorp, Bruce Stuart is a Certified Management Consultant with experience in the computer hardware, software and telecommunications markets of more than 40 countries. He has authored in excess of 300 articles and eight books on the subjects of building channel partner business value and improving vendor channel strategy. He is a world renowned executive educator and strategic management consultant.

ChannelCorp Workshops
ChannelCorp provides Executive Education to vendor and channel partner management. Public workshops take place in Asia, North America and Europe. In-house workshops take place throughout the world. For more information, go to the Workshops section of www.ChannelCorp.com.

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1.6 Compensation Solutions

Have you ever analyzed your receivables based on which salesperson sold the account, or which products were purchased by the account? When you do, you will find that your accounts receivable problems are not uniformly distributed across your salesforce or your product line. Some of your salespeople will have generated more accounts receivable problems than the others. When you examine each salesperson as an independent business unit, and reduce their gross margin contribution to the business by the cost of the receivables they create, you will likely find some changes in your salesperson ranking. In fact, your highest producing salesperson (however you define productivity) may not be your most profitable.

This article examines the relationship between compensation systems in resellers and solutions to cash flow problems. Specifically, the article surveys conventional compensation systems and provides guidance on how to pay salespeople to become partners in the solution of your accounts receivable problem. In short, if you want your salesforce to help solve your receivables problem, you will most likely have to change the way that you pay them.

Compensation systems
Salesforce compensation systems typically have three components:

Fixed vs variable blend

Variable payment drivers

Variable payment triggers

Most compensation systems in reseller salesforces generate a combination of fixed and variable payments. Typically 40Ð60% of total compensation is paid as a fixed payment or salary, and the balance is variable. Altering the fixed/variable blend of salesforce compensation does not directly impact the accounts receivable investment in the reseller.

Variable payments can be driven by both quantitative objectives and qualitative objectives. The three typical quantitative drivers of the variable component of compensation are Revenue, Gross Margin Dollars or Contribution Dollars, and Collections. In the last few years, many resellers have begun to compensate their salesforce not for Revenue Dollars but for Gross Margin Dollar or Contribution Dollars. The change has come about as a result of the introduction of products into the reseller product mix that generate revenue dollars but no gross margin or contribution dollars.

In order to enlist your salesforce in the war against high receivables (and the inevitable bad debts), you must begin to compensate them on the actual dollars that are received from their accounts. The shift in compensation trigger based on the receipt of cash also shifts the timing of when variable payments are triggered, and encourages sharp salespeople to ask for money up front, or sell the lease option.
The timing of the payment of variable payments to the salesforce ranges along a continuum that includes payment when orders are booked, to payment when orders are shipped, to payment when the cash is received by the reseller. There are many stories in the industry of salespeople who loaded up resellers with business that never shipped or shipped business that was never paid for. As a reseller manager, you must be focused on paying people only when you have been paid.

Developing partners in profit
The compensation system that encourages your salesforce to help you solve your receivables problem is as follows:

set your fixed/variable ratio at 50/50 or 60/40

pay your salesforce for the cash that you have received from their customers as well as a specified gross margin target

pay your salesforce within one week of the receipt of the cash

Your new partners (previously your salesforce) will be discouraged from selling to problem accounts because they won’t get paid and their compensation will be delayed. They will not sell problem products, products that are returned often, or products that are poorly supported. They will be encouraged to ask for money up front and they might also be encouraged to sell the lease option rather than book a problem account.

In summary, there may be a compensation system solution to your receivables problem. Consider compensating your salesforce for gross margin dollars and cash receipts while triggering variable compensation when you get paid. In this way, you will line up the objectives of the salesforce and the objectives of the Accounts Receivable Project. As a result, your salesforce will become partners in profit. The next section examines issues regarding sourcing new capital for your business.

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The foregoing document has been excerpted from the 6th Edition of the Reseller Management Handbook, available for $100.00 U.S. from ChannelCorp Management Consultants Inc.

ChannelCorp Consulting services
ChannelCorp provides strategic consulting in the areas of channel economics, channel strategy, channel marketing, channel development and channel management to hardware, software and peripherals vendors around the world. ChannelCorp is also widely recognized as one of the industry’s leading authorities in the areas of reseller and solution provider profitability improvement.

ChannelCorps’s management consulting expertise is built on a solid foundation of fifteen years of researching and analyzing the evolving business models and marketing strategies of the vendor and solution providers worldwide.

Suggested Reading
For more information on the topics covered in this article, you should consider purchasing The Channels Handbook and/or The Reseller Management Handbook. For more information, go to the Products section of www.ChannelCorp.com.

Availability
ChannelCorp can make our copyrighted materials available to your organization for inclusion in your corporate newsletters and websites.

For information on republication, contact Bruce Stuart - channelcorp@telus.net

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