I had a thoughtful conversation the other day with one of our members – a long-time sales rep and sales manager. It was regarding the concept of value-added. He had seen a recent “Hotline” article in our newsletter and was concerned it was sending a message which was negative to the sales force.
I have been a proponent of Value-Added (VA) as a tool of measuring “real” sales for years. [Gross Sales less Materials and Outside Purchases = VA Sales] There has always been a crucial need for management in our industry to understand that measuring gross sales is not enough – and that’s also true for sales reps.
Our member’s concern was that with today’s ever-expanding need to sell integrated solutions, which means not everything is produced under one roof, a focus on value added sales compensation can be detrimental to the sales force. And I think he has a good point. Sales generated from “resale” type work (web design, mailing, finishing, i.e. work not done in-house) has much less VA; thus less compensation than gross sales if VA is used as a compensation methodology. Our member’s concern was that there would be no incentive to sell that type of work; thus, defeating the concept of firms in our industry being solution sellers.
Here’s the key issue in my mind — sales compensation alone can not manage a sales force. Thus, it is incumbent the sales force have very clear goals of what it will be selling – and the compensation methodology must align. As I shared with our member, in too many cases over the years, I’ve seen company after company fail because of a sole focus on sales. Yes, there are many other internal (production) issues which must be managed – but it all starts with the sale.
My argument is that company owners and stakeholders (which mean sales and production team members) must understand the economics of creating value and producing profitability. It’s very complex — but thinking that “sales” will fix all problems has been a cancer in our industry which continues to spread and hasten its shrinking.
As our industry continues to morph over the next decade or two, a key element of profitability is understanding Value Added sales. Rewards/compensation must align with company objectives, and VA should be one of the key metrics – but as our member suggested, it can not be done blindly.