Reinventing the assembly line
Until the early 1900s, automobiles were made the old-fashioned way, with large amounts of expensive manual labor. Then came Henry Ford and other innovators such as Fred Olds, the founder of Oldsmobile.
After analyzing the inefficient process of automobile manufacturing, they came up with an alternative approach called the "assembly line."
The assembly line allowed workers to specialize in just one or two functions, instead of individual workers performing multiple jobs on one car at a time. This level of specialization increased worker efficiency, cutting hundreds of hours (and hundreds of dollars) from the cost of producing an automobile.
The Traditional Sales Model
Similar to the early automobile industry, the sales organizations of most security alarm companies, including my former company, are very inefficient. Following a traditional sales model, most sales organizations have a single sales rep assigned a specific geographic territory. The rep's mission is to personally take care of all business generated from their predefined area.
This model presents several obstacles to the primary mission of any sales organization-grow sales!
Sales reps spend too much time processing small orders for existing clients. If they're processing small orders, they're not selling new accounts. At our company, I never looked at the issue as a problem to be addressed because I was trained to believe that booking these types of orders went with the turf. Besides, if the reps didn't take care of the small orders, who would?
2. Preferential Focus On Existing Accounts
To maintain income levels, reps will follow the directive of most compensation programs-only sell projects that generate standard margin levels. As a result, reps tend to spend most of their time milking existing accounts because they are usually awarded in a non-competitive, high-profit environment. Although business from existing accounts can maintain profits in the short term, it does nothing to expand the client base and set the table to boost future sales.
3. Avoiding New Projects
Since new accounts are highly competitive (resulting in substantially lower margins and lower commissions), many sales reps decide not to go after new accounts. From their perspective, the risk-reward ratio is too low.
The New Model: The Hunter-Farmer Program
We solved this problem at my former company by creating a new sales model-the Hunter-Farmer program. Under this program, a sales team (Hunter-Farmer) was assigned to manage a specific territory. The territory was their "piece of ground" to hunt, defend and cultivate. The Hunter (senior sales rep) had the primary mission of pursuing new accounts. He/she also had the responsibility of managing all activity from their assigned territory.
The Farmer had a completely different set of duties. The Farmer's only mission was to take care of and grow existing accounts as well as support the Hunter. The Farmer was a less-experienced junior sales rep with good product knowledge and customer-relations skills.
A critical component of this new model was the compensation plan. To redirect the sales efforts of the Hunter to new accounts, we changed the commission plan. On new accounts, we significantly raised the commission rate; while commissions on existing accounts were substantially reduced.
By shifting territory management responsibility from a single sales rep to a team and restructuring the incentive program, we achieved great leaps in sales productivity, along with other rewards. They included:
Increased New Business. By having the Hunter concentrate on new accounts, the results were phenomenal-our new accounts business exploded.
Three-fold Increase In Small Orders. With Farmers spending a majority of their time cultivating existing accounts, small orders from existing accounts nearly tripled.
Training Ground For New Hunters. Working under the direct supervision of the experienced Hunters, we were able to develop a cadre of Farmers with two to four years of training for future replacements.
The new sales plan we adopted was not developed by MBAs, nor was is it based on a series of complex formulas. We developed it based on proven theories of labor productivity going back to the days of Ford and Olds and using plain old common sense. By adapting these basic principles to our company and culture, we were transformed into one of the most profitable systems integrators in the country.
This article is an excerpt from Alan Kruglak's new book, Sales Compensation, The Hunter-Farmer Way. For more information, call ARK Solutions at 301- 365-7522 or visit the website at www.arksolutions.net.