Sales Tip 1827: Are We Rewarding the Sales Discounter? - Todd Caponi

“Maybe it’s time to rethink how we compensate salespeople.” – Todd Caponi in today’s tip 1827.

Todd Caponi on LinkedIn
Todd Caponi on Twitter
The Transparency Sale Website
The Transparency Sale Book
The Transparent Sales Leader Book

Have feedback? Want to share a sales tip? Submit a Sales Tip here or via Email: [email protected]

Transcript:

Scott Ingram: You’re listening to the Daily Sales Tips podcast and I’m your host Scott Ingram. Today’s tip comes from Todd Capponi. Todd is the author of the three time best book award winning international bestseller the Transparency Sale and the new bestselling book the Transparent Sales Leader. Todd is a multi time C level sales leader who’s had two successful exits. Today he speaks and teaches revenue organizations about leveraging transparency and decision science to maximize their revenue capacity. As principal of salesmelon llc. Here he is.

Todd Caponi: Hey everybody, Todd Caponi here. And being the nerd that I am, over the weekend I got ear deep in researching the history of discounts and what they called price cutting and negotiations and comps plans. This was an article from 1916 that’s titled Is there a best way to pay salesmen? And it struck me, you know, we’re right now in a economic era that is really focused more on profitable growth versus revenue at all costs. Right? We went through that slow and steady growth phase and then survival and then growth at all costs and now profitable growth. But our compensation plans and the way that we pay salespeople has been consistent over the last bazillion years. It’s pay a variable amount based on the total of the deal or the booking. And here’s why. I think we need to wake up to this idea that you know what we’re actually incentivizing.

We’re incentivizing the rep that discounts and celebrating them over the one that doesn’t. And here’s what I mean. Let’s just take a simple example. And I found this literally in 1916 and I’ve kind of modernized it today. But let’s imagine that you’re selling a product that has a list price of $100 per seat up to 200 seats. Okay? So $100 a seat, you make 10% on that and the business cost is $50 per seat. So that would mean that if you sold it at list price, your margin would be $50 per seat. Making the math really easy here.

Let’s just take an example. Let’s look at rep number one here. Who is the conscientious rep. Sells 100 seats, doesn’t discount $10,000 booking. Right? Yay. $1,000 commission. That’s based on that 10% and the margin is $5,000. That would be seen as a good deal. But who are we actually going to celebrate? We’re probably going to celebrate Rep. B. Rep B is the discounter, right? Guns a Blazin sells 130 seats. At a 15% discount. So the deal is bigger. $11,050. The commission is bigger. They’re going to get paid more.

And the margin on that bigger deal is actually less than this smaller deal. But we are paying this rep more. We are celebrating this rep more because the deal is bigger. And what are we doing here? If this is to the same account, it means that the upsell opportunity is smaller, too. What are we doing? Is there an opportunity here for us to rethink the way that we think about compensation plans? They were doing it right 100 years ago. I think there’s an opportunity for us to get smarter about this and to take a clear look at the way that we are compensating people based on what the goals are or the organization. If your investors care about profitable growth. But we are rewarding the discounts. Something’s amiss. Maybe it’s time. All right, what do you think? Let me know. Thanks

Scott Ingram: For links to Todd’s YouTube channel and to connect with him on LinkedIn, just click over to DailySales.Tips/1827. Once you’ve clicked over there, be sure to click back here for another great sales tip. Thanks for listening.