Although business improvement is uneven across industries, the global economy does appear to be heading out of recession. Increasingly, there is evidence that companies are focused on initiatives to increase revenue growth. One revenue growth initiative that is particularly enticing to large organizations with multiple business units is cross-selling. This is because expanding market share organically is substantially less expensive than doing so through an acquisition or merger.
Cross-selling may also have advantages for the customers. Meeting business needs by tapping into the portfolio of products and services of vendors whom they already trust can save time and money. However, rewarding sales people for selling bundles of products from different business units is often a significant sales compensation plan design challenge. The purpose of this Short is suggest factors to consider when designing cross sell incentive plans.
CROSS SELLING OVERVIEW
Cross selling is a sales approach designed to profitably “sell more” products and/or services to current customers. Effectively executed, cross selling increases the customer’s reliance on the company and decreases the likelihood of the customer switching to a competitor. In companies with multiple business units, cross selling requires team selling, that is, sales reps and their managers working in partnership on behalf of the customer’s best interest. Of course, this is easier said than done.
The good news is that cross-selling is potentially a more profitable and less risky endeavor than an acquisition or merger. On the other hand, the bad news is that cross selling is often resisted by sales forces because they fear losing control of the customer relationship. And, any “tug of war” for customer control at the point of the customer relationship could risk losing the customer. It’s important that the right sales model is put in place to achieve cross-sell business objectives. A focus on sales incentive compensation is not meant to minimize the importance of implementing the right cross-sell model. Once the sales approach to cross selling had been decided, we find that regardless of that approach, the answers to questions about the
key design factors will lead to the most appropriate incentive plan.
CROSS SELLING INCENTIVE PAY: DESIGN CONSIDERATIONS
When cross selling is new to a company, management may implement a referral incentive plan to motivate and reward sales success. Typically, a referral incentive involves a modest sum of money which is paid when the “seller” closes business with the referred buyer. Strictly speaking, referral incentive arrangements do not build either team selling or close collaboration between the resources interacting with the customer. Meaningful cross-sell incentives, we believe, are designed to engage, incent and reward sellers for both “co-dependency” in the sales process and involvement with meeting the needs of a customer. Thus, the table below summarizes the key design factors and related question that must be addressed to arrive at an appropriate cross selling incentive plan.
CF’s PERSPECTIVE
In our opinion, effective cross sell incentive plans are ones that: “carve out” a portion of target incentive and are tied to achievement of defined goals (quotas). Generally speaking, we find that such plans are more effective in motivating behavior and delivering the results that management seeks.
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