Increasing Profits Through Better Metrics

Problem

To increase its profitability, a large distributor retained Go To Market Partners to assist in a complete transformation of its sales force. One component of this effort was to make certain the incentive compensation system tied sales force remuneration to meaningful performance metrics. The existing measurement system had many common problems:

• There were too many metrics
• Many of the metrics were out of the control of the sales force
• The metrics weren’t linked to true drivers of company profitability

GTM Partners was tasked with developing a new measurement system that eliminated these problems and aligned the incentive compensation plans with the company’s strategic objectives.

Action

Our consultants began by reducing the number of metrics used for the compensation system to one – net customer profitability. This measurement was developed through an activity-based costing analysis and allocated all direct expenses involved in selling and servicing an order to the individual customer. The salesperson had substantial influence over all of the allocated costs, and the resulting behavior was perfectly aligned with the profit motive of the company.

To promulgate this new metric, monthly customer profitability reports were created by the company’s accounting department. During sales training sessions, the sales force was taught how to interpret the reports, understand the impact of their behaviors on customer profitability, and determine how metric impacted their incentive compensation.

Result

For the first time in memory, the client had metrics that were in synch with the company’s objectives, were clearly understood by the sales force, and motivated the right behaviors in its salespeople. Within weeks, the company’ profit margins began to climb as the new metrics and reporting shifted the focus of its salespeople toward customer profitability.