Category Archives: sales compensation

6 Tips for Saving While on a Variable Income

How long could you survive on your savings account alone?

When a friend asked me this question, it changed my life.  I had never truly thought about it before. After carefully calculating my budget and analyzing my monthly earnings and spending, I felt so much more in control of my life.

Let’s face it, life is tough and is always throwing us punches.  No matter how stable and secure we may think we are, at any given moment everything can change at the drop of a hat.

Whether it’s an emergency home repair, health issue or job loss, everyone should have some sort of emergency savings to cover these unanticipated costly events.

In sales, most of us are on a highly variable income. We are typically compensated by a base salary plus commission which may be paid out monthly, quarterly or only annually.  Some sales positions are 100% commission.  My monthly income used to vary by as much as 500%. Being on a variable income makes it significantly more challenging to save, however if you follow these tips, you will find yourself getting ahead much faster than you may think.

1. Analyze Your Income and Identify the Month with Your Lowest Earnings (AFTER TAX)

A quick way to figure out this number, is to simply look at your base salary and ignore commissions.  If you make monthly commission, look at the previous year and identify your lowest month and use that as your figure.  If you are on 100% commission, identify your lowest month and if that is zero, look at the frequency of your sales and you may have to develop a quarterly budget.

2. Create a Budget Based on that Number

Identify ALL of your current spending to have an idea of where you are at.  Firstly, begin with your non-variable income (i.e. mortgage/rent, property tax, utilities, etc.) and then your variable income (everything else ranging from food, entertainment, travel, etc.). Don’t forget all the small stuff that adds up like subscriptions, gifts, clothing, gym membership etc.  Be sure to include absolutely everything you can possibly think of because this is where you will be able to make some cut-backs.  Add up all of your variable and non-variable income separately and combined.  Then compare it to your lowest earning month and deduct that figure from your expenses.  What kind of deficit are you running? Where can you cut back? Can you be shopping for basic necessities elsewhere to save money?

3. Pay off High Interest Debt First

With some high interest debt, you may actually end up spending more money paying off interest than your actual debt.  If you can obtain a line of credit from your bank, usually those rates are significantly lower than credit cards and other debtors and you can use those to pay off your higher interest debt in the interim and then work towards paying off the line of credit.

4. Upon Paying off Debt, Automatically Transfer the Same Amount into a Savings Account

This is where I was able to save most of my money.  I had a car loan that was $750 per month. As soon as I paid it off, I set up the exact same amount of money to be automatically transferred to my savings account each month.  After all, I was used to that amount being withdrawn from my bank account each month, so why stop now?

5. Set up a Tiered Savings Plan

I have a variety of savings accounts, all of which have a different purpose and I use them in this precise order

  1. Chequing account– A basic account I use to pay all of my bills
  2. Savings account (low interest)-First line of savings which I use for mostly home repairs or vacation.
  3. High Interest Savings Account-Backup- Only withdraw funds if regular savings account is low.
  4. TFSA (Tax Free Savings Account)-This is similar to an investment account. Only accessed in case of emergency.
  5. Mutual Funds– Investment only accessed if all other accounts are limited which would be an extreme emergency.
  6. Line of Credit-Absolute last resort.

When I was not working, I always kept a base amount of money in my chequing account. I transferred my monthly requirement to that chequing account from my regular savings first, then my high-interest savings account after my regular savings was used up. Fortunately, after 7 months of unemployment, I never had to dip into any of my investments.

6. Invest in RRSPs

Very commonly in sales positions where we may be taxed at the rate of our base salary and not at a higher rate once commissions are included, we may end up not paying enough taxes and owe taxes back. In this case or if you anticipate that you may be earning less money the next year, then you should consider investing in RRSP’s. This will reduce your overall taxable income. The only disadvantage is that once you invest in RRSP’s, this money is no longer liquid.  Therefore if you plan on needing access to this cash, it may be better to simply pay taxes and keep your money in savings.

The Take-Home Message:

The saying “The more money you make, the more you spend” is so true.  My spending over the years got out of control. I used to be an entitled brat who felt that every time I received a paycheque or a bonus that I “deserved” something in return.  I used to spend almost every penny I made and would deny myself nothing.  If I woke up and thought I wanted something, I’d go out and buy it.

It wasn’t until I was facing a situation where I was no longer able to work,  that I actually sat down and ironed out the differences between what I really needed to get by in life, vs. the “things” I thought I needed.

The fact of the matter is that nobody, I don’t care who you are or what you do “deserves” anything.  All of us owe it to ourselves and our families (where applicable) to be fiscally responsible and maintain a roof over our heads and be able to have food on our table.  It is only from there that we can build a foundation upon to live a happy, meaningful life.

So ask yourself, how long could you exist on your savings alone?

AND

If that time frame isn’t long enough, what are you going to do to change that?

Happy sales my friends and don’t forget to put those bonuses to good use.

Cheers

TSW

5 Surefire Ways To Lose Your Best Sales Representatives

iquitWant to Keep Your Best Sales Reps? Don’t Make these Costly Mistakes!

The average sales representative changes employers every 2-3 years.  At any given point in time, I know at least a handful of sales representatives who are looking to make a move.

Why? Because companies make the same mistakes time and time again that cost them their best reps.

What are they doing? In almost all cases, companies are trying to cut costs and increase profitability. The problem is, if you cut costs, service, quality or both will also be sacrificed to some degree.

The most common complaint from managers and business owners that I have heard is that their commissioned sales representatives are making too much money.

BusinessmanBurningMoney

What is wrong with this statement?

If your commissioned sales reps are making a lot of money, it’s a good thing! It means that their sales are good and the company as a whole is making more money. Reps on a 100% salary are another story entirely!  So, the problem is that companies of this mindset are simply being greedy and short sighted thinking that they can try to squeeze the highest level of productivity out of their sales force for a minimal investment.

Some sales managers alike may take issue with the representatives they manage who are making more money than them. Rather than taking pride in being a good manager and celebrating the success of their sales team, they see this as a bruise to their ego and then make detrimental changes to how their reps are compensated.

Whether you are a business owner, VP of Sales or a Sales Manager be sure to avoid making these hefty mistakes which will cost you your best reps and maybe even your entire sales force.

1. Cutting and/or Capping Commission

paycutLooking for a way to slowly poison your sales force and give them a prolonged, torturous death? Cut their incentives or better yet, cap them all together! Salespeople work on incentives, so if those incentives are taken away or significantly reduced, they will either work less or look for work elsewhere immediately.  Some but very few reps will persist and try to work harder to make what they were making previously but that will not last long.  They will eventually leave or burn out and then leave.

2. Territory Realignment

salesterritoryTrying to figure out a way to cheat your reps out of reaching their targets so you can save on paying out those commissions and bonuses? Shift their territories around every 6 months to 1 year.  That way nobody has been in their territory long enough to qualify for their commission or the reps who would have been entitled to a hefty commission, no longer have that account in their territory after the change so they are no longer eligible to receive it.  This strategy also makes it impossible for the sales reps to maintain any working relationships with their clients which is a substantial part of building the business.  Clients don’t want to meet a new rep every year.  It screams that the company is unstable and therefore potentially unreliable. Not only will the business as a whole suffer from this strategy, but it is also more than likely that the company will also lose their entire sales force. If a sales rep has no chance at making their commission or bonus, they will leave.

3. Unreasonable and Unachievable Sales Quotas

Dangling-CarrotFeeling a little sadistic and enjoy dangling that carrot in front of your reps and moving it further and further out of their grasp? Give them a massive increase in sales quota that none of them will be able to achieve.  I have seen well established companies that have been in business for decades implement a new sales target that is 10 to 20 times their previous target for products and services they have always sold and seen regular 3-5% annual sales increases. If a company increases a target, it must be a realistic target that can be achieved by at least 50% of the sales force.   Implementing completely unreasonable and unachievable sales quotas most often results in the resignation of the entire sales force. Afterwards,  good luck maintaining those regular sales increases!

4. Reducing Sales Support

phone off hookWant to leave your sales representatives to hang out and dry? Cut back on their support. Sales people are out there all day long pounding the pavement, pushing the company product or service on their clients and often a situation arises where the rep needs assistance from a manager or from customer service.  When companies make cutbacks in this department, the rep is left completely to their own devices and do you know what most of the good reps will start to think? “Why do I need to work for this company? I’m doing everything myself so I should just start my own business!”. Alternatively, some reps may opt to jump ship and work for another company, perhaps even one of their competitors, who offers better service and support.

5. Dramatic Change in Management Structure and/or Style

DrEvilProjectManagerWant to take your company to the next level? Do it wrong and you’ll take the company to the next level downward! There are multiple ways companies can implement changes to management structure and style.  The most common mistake I have seen are companies that have historically given their reps a fair bit of freedom (and where the reps were successful in that environment) change to a micromanagement system in order to increase accountability and profitability.  This is flawed because simply some reps thrive in a micromanaged environment and some do not. If you change your management style, you will also likely need to hire an entirely new sales force that will fit nicely in that environment rather than resist it.

So if you are reading this article looking for ways to eliminate your entire sales force of “overpaid” sales representatives (without firing them so you don’t have to pay severance) and replace them with entry-level newbies who you can pay 1/3 of their salary, you may have found this article helpful. If that is the case, I hope that neither myself or anyone I know ever works for you.

On the other hand, If you have a great sales force or even just one or two star individuals and want to keep them, avoid making these costly mistakes. It takes a significant amount of time and money to hire and train the right representative, so why put yourself through this process time and time again?

If you need to cut costs, try to look elsewhere in the business where you can implement cost cutting mesures or better yet, try to explore other means to increase your business. Thinking out of the box can be difficult but it can also be immensely rewarding.

In summary, it takes money to make money.  Same goes for people who you invest in as employees.  If your people are doing well, don’t cheat them but rather reward them accordingly. Investing in great employees is a solid investment in your business.

Happy sales my friends.

Cheers,

TSW