Book Review: Sales Reps are Free

Below are excerpts from a very good book called Sales Reps are Free by Bill Conifer.  It's all about how to structure, manage, and compensate sales teams, and I've paraphrased what I think are some of the key sections.  This blog post won't do the book justice: if you're serious about selling to the enterprise, this is a must read.
 
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"The only reason to terminate to terminate an incrementally profitable lower performing rep is to make room for a higher performing rep.  You shouldn't terminate a failing rep unless you sales managers are maxed out." p22
 
"A competitor could reverse engineer your product in 9 to 18 months, but it would take years to recreate your channel of distribution or your motivated sales force."  p30
 
How to Get More Selling Time
"Take away any excuse for your customers not to buy your product today.  Most internet companies have this down cold.  Look at Amazon: same day shipment, great guarantee, ship from a warehouse near you, and great prices.  Why not buy from Amazon? Have you ever tried buying a  $2 battery at Radio Shack? They want your name, address, and first born child before you can buy with cash." p31
 
"It's natural for other departments to try to erect sales obstacles.  It makes their job easier, absolves them of any risk, and if sales suffer, well it's not their department's problem.  So the obstacles pile on, and the sales rep's job gets harder while everyone else's gets easier." p33
 
"My philosophy is that if your bad credit losses are less than 2%, then your credit policies are unnecessarily restricting sales." p34
 
"Let your reps focus on selling.  This is of course a corollary to removing policies that impede sales.  Every minute your rep spends chasing down credit aps or filling out account applications, it's time she's not selling.  What non-sales tasks are you making your sales reps do?" p35  
 
"When I ask CEOs how they intend to grow sales without hiring enw sales reps, they often answer, "we'll sell more per rep.  We need to make the sales reps more efficient!"  Okay, with a lot of effort you may realize a 10% gain, but I've never seen it happen.  The only way to grow is to add more reps, especially when your current reps are topped out." p43
 
The Rule of Five
"the span of control in any complex managerial job is four to six direct reports.  Selling technology is certainly a complex job and therefore, a sales manager can only effectively manage four to six sales reps.  Five is ideal.  I call this the Rule of Five.  You need one sales manager for every five reps (or VARs or sales rep firms)." p51
 
"Your Google spend should be determined by your response rate, not your head of marketing." p56
 
"A rising sales per rep average indicates that you are not adding enough sales horsepower for the coming tear.  Last year's hires are climbing the S-curve, but you aren't hiring new ones that should drag the average down." p65
 
When to Hire More
"Minicomputer Corp had the lowest base with no cap on commission.  Thus, while lower performing reps fled, the best and brightest stayed and became the highest compensated sales force in the industry.  Sales should involve some natural selection.  If every rep is succeeding, then you're not hiring fast enough."  p68  
 
"EduSoft had eight sales reps nationwide doing $29mm in total revenue.  One rep was doing in excess of $8mm herself.  Her territory was TX to MN, west to Denver, and east to Dubuque, a significant chunk of the country.  Yet when I plotted her sales by customer location, which the company had never done, I found that over 80% of her sales were within 150 miles of her home office in TX.  She had a territory nearly the size of the Louisiana purchase but did almost all of her selling in a local area about the size of Rhode Island.  Imagine if the company had enough reps to service her entire territory that well.  Having never graphed their sales geography, they hadn't known this opportunity was there."  p72
 
"A sale is not a one time event.  After a customer orders the first time, they expect good service, on-time deliveries, support, and such.  In summary, they need your rep's time.  Mature reps thus simply run out of time.  It makes their new customer acquisition trend toward zero.  Trust me that is not only ok, it should be what you want.  A sales rep's rate of new customer acquisition goes down each year if he's servicing existing customers well." p78
 
How Many Sales Offices Do You Need
"Local presence matters.  I always push for geographically dispersed sales offices.  Err on the side of having more, smaller offices in disparate places, because people like doing business with someone local." p83
 
"One man offices can excel in markets that you may not otherwise even access.  And they're very efficient.  One person in an office has nobody to chat with except the customer." p84
 
"A sales manager can only effectively manage five reps, the "Rule of Five".  Unless you add another layer of sales manager, the sixth rep will likely fail.  Thus, the six person sales office - five reps plus one manager - is the best alternative to the one man office.  Are you better off with twenty five sales reps in one office or five offices with five reps each? It's no contest.  Five offices gets you five more geographies that will double or triple in sales." p85
 
"The first remote branch is the hardest.  After that, it's a recipe." p88
 
"Every product, no matter how ground breaking or fashionable, will eventually become obsolete.  The selling time frame is finite." p92
 
How to Write a Great Sales Compensation Plan
"Your commission plan should be clear, simple, and easy to calculate." p102
 
"Design your plan to pay the same now for a dollar of revenue as you will three years from now.  Most CEO's believe in uncapped commissions.  They believe they already have an uncapped plan.  They don't.  Most plans are only uncapped during a single commission year.  The plans get reset every January 1st by increasing the successful reps revenue targets.  This is wrong.  You should pay for revenue and not for achieving a percentage of target." p103
 
"Imagine you are a rep and you sell a customer $30,000 this year, $1,000,000 next year, and $3,000,000 the following year.  What would your Company's plan pay you? If your plan doesn't pay you at least 100x or more in the third year of for this 100x revenue increase, then your plan is capped.  Fix it." p104
 
"Most comp plans drive great reps out of the company, primarily because of percent-of-quota based comp plans.  Your plan should pay more per dollar sold to your great reps, not differentiate between new and current customers." p104
 
"An additional side effect of a good plan that retains great reps is that it usually does not retain poor reps.  If you have a low base salary, arep who isn't selling can't afford to continue working at your company.  He will find another position probably with a company with a higher base and a quota plan, hopefully with your competitor." p105
 
"Your plan should pay an increasing percentage per dollar sold.  For example, 1% on sales up to $500,000, 2% to $750,000, and 3% for anything over $750,000." p105
 
"The following should be the priority of the sales comp plan: 1.  Do not lose a customer  2.  Sell more to current customers  3.  Go after new customers.  If you add support personnel to an account, and you should, do not reduce the responsibility of your sales rep." p108
 
"And remember, to achieve your revenue targets consistently, you need a combination of a great plan and a continually increasing number ofreps." p115
 
"Concentrate on the percentage cost of selling instead of dollars actually paid to your reps." p120
 
"Base salary: $88,000 per year.  Commission: 1% to $500,000 in revenue per year, 2% to $750,000, and 3% thereafter.  This plan has no cap on sales rep earnings, no management of earnings by paying more for new accounts vs current accounts, no management manipulation of the best reps' pay, and no negotiation of quota or compensation each year." p126
 
"Non-selling reps starve.  They join competitors with higher bases and quota based compensation.  Having your worst reps join a competitor is a double win." p129
 
"Since I was paid the same for existing customers revenue and it was easier to get additional orders from my current customers, that is where I spent my time." p130
 
"CEOs too often believe selling is a one time event and that current customers take no selling time or effort." p134
 
"Ongoing commission (paying reps each year for an account won in prior years) adds up and locks the great reps firmly to your company." p139
 
"We designed a plan whereby if a rep closed an early renewal, they earned a higher commission than if the contract was one year or less from expiring." p140
 
"By now, you should be able to predict the plan I put in place: promote the current sales reps to sales managers, add 25 new sales repsreporting to them, institute a multi-year motivational comp plan, then align the sales managers' comp plans with the reps' plans, and duck.  As yous suspect by now, I recommend multiple sales offices with five reps each, the number manageable by one sales manager." p142
 
"I recommend multiple sales offices with five reps each, the number managable by one sales manager." p144
 
"If any rep sold 60 new/renewal customers, the company would lease them a car for the following year.  It would only cost the company $200 per month, but you could not believe the excitement." p146
 
How to Control the Cost of Selling
"In reality, revenue you earn today is a reflection of the investments you made or failed to make in your sales channel three to six months ago." p157
 
"When you cut your sales expense the savings are immediate, but the inevitable revenue loss, which can far outweigh those savings, are delayed." p158
 
"I recommend a cost of selling that is 30% of your margin." p160
 
"Your reps above all should be motivated to keep existing customers happy, or a competitor's rep will." p166
 
How to Hire Great Reps
"It requires completing the sale, ensuring the product is delivered and functioning, and most importantly, collecting the receivable.  There is no commission payment until after collection, and you must be an employee at the time of payment to receive commission." p171
 
"Discuss upward mobility, how fast a sales rep can become a sales manager and earn compounding commissions from the five reps under him." p173
 
"AsiaSoft recognized that when you pay a big commission, you're inspiring all your sales reps, current and future, to bring in more revenue.  Not only should you pay big commissions in full, you should pay with one of those giant four foot long checks like Publishers Clearing House and award it to the rep in front of the entire company." p 182
 
"If you reduce the sales compensation line in your budget, then you need to also reduce the revenue line six months later, because that is exactly what you are really cutting.  Every dollar "saved" on comp is an exponential loss in revenie, albeit a deferred one.  Savings are an expensive illusion." p186
 
The Psychology of Sales
"I remember David packard, the cofounder of HP, telling his new hire sales class,"if I had the best products at the lowest prices with instant delivery, I wouldn't need you guys."  p189
 
"If your company has an 20% market share, that means on average you get rejected four out of five times.  And that's not even counting all the times you get rejected by people who aren't in the market at all." p189
 
"Go to a bar.  Go to the library.  Go play golf.  But get your butt out of this office.  If you haven't noticed, there are no customers here." p193
 
"The time your reps spend on bookkeeping and complying with inane rules, is time they are not selling.  That's money out of your company's pocket.  How much are those rules worth to you?" p195
 
"I should also point out that he also told me the difference between being a resource for your customer and being a pest: if you call with useful new information, you are a resource; if you call to "Touch base" or "check in", you are a pest." p197
 
Sales Motivators
"Most CEOs think the major motivator for sales reps is their commission check.  It's not.  It is recognized achievement.  Reps and all you other employees, crave recognition for performance they are proud of.  If you want to maximize revenue per rep, you should shower your repswith awards and recognition.  As my friend in equipment sales said 'things like recognition meetings where your name is being called when you hit your number or do really well are a great motivator.'" p201 
 
"Whenever anyone closed a new account, he would glue a matchbox car to an index card with the customer name, date, and revenue typed on it.  These trophies, which looked suspiciously like a second grader's diorama, would be presented at the monthly sales meetings as a Hot Shoe award.  We treasured those stupid cars.  I closed 19 new accounts that year; people jokingly referred to the top of my bookcase as the Parking Lot.  I loved it.  Would I have closed those accounts  anyway? Honestly, probably not.  The recognition, embodied in some sladpdash trinket, drove us." p202
 
"One of the best ways to motivate sales reps is to tap into their incredible competitive spirit by publishing monthly sales rep reports.  This recognizes achievement at the top and motivates the bottom to get moving upward." p203
 
"Quota is only an agreement between the sales manger and the rep as to what the territory should produce in the coming year.  It has nothing to do with compensation." p204
 
"Monthly, or at least quarterly sales contests are a must.  The key to running great contests is weekly reporting, similar to the monthly salesreport above.  Remember: recognition, not the actual reward, is the purpose of the contest.  So frequent, public exposure is paramount, whether it's a chart on the wall with toy airplanes racing toward Hawaii or a thermometer showing the sales heat." p205
 
"Mangers often give the best leads to the new or low performing reps in an effort to level the plating field.  No.  The new reps should prove they can sell before they earn the hot leads.  This is motivational because the new reps want to move up and get the best leads, a dangling carrot of sorts, and successful reps are spurred by their own success." p212
 
"When sales reps are not doing what you think they should be doing, don't punish violators.  Instead, publicly reward those who are doing what you want." p213
 
"Sales quotas do have a valuable role in planning. They should be used as a bottom-up forecasting tool and should be discussed, not negotiated, between your sales reps and your first line sales managers.  By taking compensation out of the mix, you can actually get your repsand managers best opinion as to what the potential is for a territory in the coming year.  Then you can maybe do something about the result, like add new reps, new products, or expand into a new geography if the number comes up short.  If you add compensation into the mix, you distort the data.  If you pay for a higher forecast, you'll get one.  If you pay commission on a percentage of quotas, you'll get very low forecasts." p219
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