Review Your Goals, Set Policies When Expanding Sales Force

Q: I own a telecommunications firm that I founded 10 years ago. In the last four years, the company has really started growing and I have been hiring additional salespeople. The hardest part has been not knowing how to structure my sales force: how to assign territory, how to structure their pay rates and commissions, how to handle disputes over customers. I am a firm believer in compensating people for hard work, but before I knew it, the salespeople were making more than I was!

None of my sales plans have worked out the way I wanted them to. I hired a sales manager recently, but I don’t have the capital to seek professional help or know where to get advice for free. Can you help?

--Hector Navarro, Extension

Plus Telecom, City of Commerce

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A: You need to be very clear about what you want to accomplish with an expanded sales force. If you have not already done it, you should clearly determine who your best customers are and make sure your salespeople are spending most of their time with them.

Plans for compensating salespeople vary widely, from all base pay to no base pay and every variation in between. There are hundreds of ways to structure your sales force. For instance, if you want to expand and need new customers, you might have some salespeople concentrating just on finding new customers and some assigned to maintaining existing accounts. If you are not as focused on getting new customers, you could give each salesperson a mixed bag of new and existing customers. Because it is harder and more expensive to secure a new customer, most companies give a little more commission to the salesperson who gets an order from a new customer, and give a higher base pay with less at-risk pay to the salesperson concentrating on existing customers.

When you decide how much to pay salespeople, you should figure in base pay, commissions, benefits and expense reimbursements so that you know how much each customer really costs you to find and to maintain. That way, you can structure your compensation so that the company can’t fail while the salespeople are doing really well.

You might factor in the success of the business as a variable in the individual’s compensation: In other words, the sales reps would get a bonus if the company meets or exceeds its financial goals.

When you assign sales markets, you should have well-structured policies. We use grids within ZIP codes to help eliminate questions about whose account is whose. You ought to use your sales manager, assuming that person has previous experience, for recommendations on compensation structure and marketing. Assign him or her to sit down with the sales force and work out a process by which they will settle disputes over customers. If they help design the policy, they are more likely to feel it is fair and less likely to worry about having to fight each other to protect their accounts.

For more specific advice, you can go to the Glendale office of SCORE, the Service Corps of Retired Executives, and get free business counseling from retired executives--including former sales managers--Monday through Friday from 9:30 a.m. to 1 p.m. For more information on their services, call (818) 784-5204.

--LuAnn Boylan

Vice president for sales, Southern

California Pacific Bell Directory

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Q: I own an executive search and temporary services firm and I am unsure how and when to strategically expand the business. I have had this company almost seven years and we are now over $1 million in annual revenues.

When do I make a move to expand, now that I seem to have hit a plateau? We have money in the bank and the company looks good on paper, but like most in our industry, we have continual cash flow problems. Should I hire a chief financial officer?

--Bonnie Wells-Taylor

Wells & Associates, Gardena

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A: For a small company that wants to grow, it’s important to look at strategies that will result in long-term health for the business and not just a quick fix. This means establishing a healthy cash position and managing the bottom line while at the same time growing the top line--revenues. This is not an impossible task.

Look at the cash inflows and outflows of the company, the real measure of a company’s health. What are the receivable patterns? Are there ways to cut costs, both the cost of producing the product or service and the cost of administrative overhead, which is basically a non-revenue-producing part of the business? Can the business be carried out more efficiently to bring more money to the bottom line?

The next step in growth may be to bring on a financial consultant, as needed, to advise you. If you are still doing the bookkeeping, it’s worth it to hire a certified bookkeeper to manage the day-to-day record keeping and to produce cash flow statements on a weekly or even daily basis so you can stay on top of what’s happening.

Once the business is in a healthy cash position and you want to grow to the next level, it may be wise to consider bringing on a chief financial officer who can manage the financial aspects of growth, while you focus on growth strategies and the customer.

One of the best and most cost-effective ways to grow is by selling more to current customers. Building up a loyal customer base and giving them added value through additional products and services can be one of the most valuable assets a business has. It costs five times as much to acquire a new customer as to maintain an existing one.

Avoid discounting on price to compete in the market. Instead, provide better service than the competitors. Customers will pay more for perceived value.

--Kathleen Allen

Author and associate professor of

entrepreneurship, business school,

University of Southern California

If you have a question about how to start or operate a small business, please mail it to Karen E. Klein in care of The Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016 or e-mail it to business@latimes.com. Include your name and address. The column should not be construed as legal advice.