It has been nearly five years since I left Nongfu Spring. At the beginning of this year, due to the pandemic, I stayed home for two months and participated in several live streams by New Distribution. Perhaps because I was quite helpful to some distributors, I received many inquiries about market challenges. One of them was a client I had served at Nongfu Spring. His problem was roughly as follows:
His market competition was fierce. In the 2-yuan water segment, there were Nongfu Spring, C'estbon, Ganten, and a local brand. In 2018 and 2019, Nongfu Spring's leading position weakened, the market share gap with competitors narrowed, and the pressure to grow performance increased.
In the past two years, he barely met targets by overstocking warehouses at year-end and dumping products at low prices early the next year. He was worried that after the pandemic ended in 2020, market expansion would be hindered, and if promotion failed, he might lose his distribution rights.
Then he spent two hours describing his "arduous journey" over the past two years. From his description, I deeply felt that the salary system was problematic and failed to effectively improve personnel efficiency. So, under my guidance, he made several changes in 2020, which I will share today.
-01- Simplify Complexity, Set Salary by Volume
First, clarify: if asked what is the most important factor affecting performance, salary is undoubtedly the top choice. Different stages require different salary incentive policies to maintain high team enthusiasm. Once enthusiasm exists, many market problems can be solved. But there is a premise: performance-based salary should be simplified, easy for the sales team to understand and accept.
Let's look at this distributor friend's salary system, which included three major items and several sub-items.
The first major item was basic reward assessment, divided into distribution achievement, active customer count, key item activity (subdivided into five or six categories), water stack execution, and terminal display execution;
The second major item was market infrastructure assessment, divided into market突击 targets for several key single products;
The third major item was sales representative commission incentives, divided into tiered commissions for several items.
In total, there were 16 items. I half-jokingly said, "Your incentive policy is so complex that even you can't remember it after ten days. If employees can't remember the month's assessment, then the assessment is invalid. Even if some incentives are obtained, they are windfalls (unintentional gains)."
In May 2020, my suggestion was: simplify complexity, set salary by volume. A person can't eat a fat person in one bite; the same goes for the market. Grasp the main contradiction, and secondary contradictions will be resolved.
Monthly assessments should have 1-3 items at most, not too many. The purpose of assessment is to solve the current main contradiction. In May, just after the pandemic was relaxed, sales personnel could freely visit the market. The most important thing was to quickly increase sales, solve the inventory problem from January, and revitalize funds.
Enterprise task assessments would also follow. To avoid channel differences and pressure causing setbacks, and since the peak season was coming, market infrastructure work like freezers and water stack displays needed to be strengthened.
So there were only two assessment indicators. First, sales volume, with salary based on volume. Currently, the warehouse was overstocked, and all items were overfull. Sales assessment should not be based on category commission but on sales amount commission. Salespeople, regardless of what they sell, get a tiered commission as long as they meet the sales amount. Set three tiers:
Tier 1 commission ratio is the distributor's normal profit;
Tier 2 commission ratio is the distributor's micro-profit;
Tier 3 commission ratio is the distributor's break-even point including packaging costs. In plain terms, it's about shedding burdens and traveling light.
Second, display. The condition for display compliance is meeting the cost-effectiveness ratio, i.e., display cost / order amount within the allowed range.
Summary: After the performance reform, sales growth was effectively promoted. The assessment mechanism became simpler, everyone understood the month's work focus, and personnel efficiency naturally improved greatly. The duty of sales is sales volume, and competition should also be based on sales volume.
Of course, don't be afraid that salespeople won't promote all products comprehensively. As long as incentives are effectively set, the number of outlets served by salespeople is limited, and the sales volume per SKU per outlet is basically fixed. To achieve performance goals, as long as guidance is appropriate, they will naturally attack other single products.
-02- No Effective Outlets, No Sales; Give Incentives to Re-route and Intensively Cultivate Outlets
In May and June, the distributor's team sales indeed improved significantly, and team income increased a lot. The distributor successfully cleared the warehouse, which was now full of new goods, and capital recovery was ideal. However, the distributor worried about channel inventory pressure and didn't know how to set assessments in July, so he consulted me again.
My answer was: now is the peak season of the year. Don't worry about terminal inventory. As long as channel policies are controlled, terminal slow-moving products won't be reordered, so don't worry about large aging issues.
Now the most important thing is to sort out your outlets. Which outlets are low-output? Which have excessive cost-effectiveness ratios? They need to be replaced. Replaced outlets are not deleted but have reduced visit frequency, becoming monthly visits or simple visits on the way, not included in system operations. At the same time, some new outlets need to be added for visits.
The specific performance salary model is: on top of the original salary, add an additional outlet development incentive.
The incentive can be set as: 10 yuan for developing an outlet, 5 yuan for reordering next month, and another 5 yuan for reordering the month after. At this time, there are also requirements for outlets (those that haven't ordered for 6 consecutive months):
1. Meet the channel attributes of target outlets;
2. Specify the required SKUs for the first order;
3. The display for the first order must meet standards;
4. There must be a requirement for the order amount for the first order;
5. There must be a requirement for regular visits to ordering customers.
Summary: The result was as expected: nearly a quarter of ineffective or low-efficiency outlets were replaced, and sales also improved significantly. The reason is simple:
First, employees' income includes a base salary. For example, if the base salary is 60 yuan per day and they visit 30 outlets a day, the cost per outlet visit is 2 yuan. If they visit five or six ineffective or low-efficiency outlets every day, it means a direct loss of several hundred yuan in base salary per month, and the indirect loss of market opportunities is even more incalculable.
Second, outlets are not fixed; they are dynamic indicators. If not adjusted for a long time, many ineffective outlets will accumulate. These ineffective outlets on one hand drain salespeople's energy, and on the other hand prevent effective outlets from coming in. Once these two points are solved, personnel efficiency improves, and once personnel efficiency improves, sales cannot help but rise.
-03- Stimulate Human Nature, Conduct PK Within the Team
Through the efforts of July and August, sales further improved, especially team income. The distributor's sales and profits also increased compared to the same period last year. Everyone was happy and harmonious.
The distributor worried that there was no significant difference in the sales team's income, and some people's enthusiasm began to decline. He planned to reform the salary performance in September to maintain this high work enthusiasm and asked me for advice.
My answer was: team salaries should have differences. The meaning of difference is to encourage the advanced and motivate the backward. Since the small salary difference caused some people's enthusiasm to decline, making the team salary differences larger will solve the problem.
The specific performance salary model is: on top of the original salary, add an additional PK incentive. Competitiveness is a human primitive instinct. Losing money in a competition is one thing, but losing face is another. So introducing PK can both stimulate the team's instinctive vitality and widen the income difference between relatively superior and inferior personnel.
Operate from the following points:
1. PK incentives should be conducted in pairs;
2. PK opponents should be people with very similar daily work performance and sales performance;
3. PK adopts a proportion system.
For example, if there are 2 PK items, display and sales: display accounts for 30%, sales for 70%. Calculate the comprehensive score based on the ranking of all sales teams of the distributor. For example, Zhang San ranks 6th in display and 4th in sales, comprehensive ranking: 630% + 470% = 4.6. Li Si ranks 2nd in display and 5th in sales, comprehensive ranking: 230% + 570% = 4.1. So Zhang San and Li Si PK, Li Si wins with a better comprehensive ranking.
Three notes:
1. If the team is small, you can also have a big PK among all team members. The calculation method is the same, assessing comprehensive ranking;
2. Set bottom lines for PK indicators like sales and display. Below the bottom line, no incentive or half incentive;
3. Pay special attention to those who repeatedly lose in PK. Is it a knowledge/skill problem? Or an emotional/attitude problem? Be prepared for training improvement or direct replacement.
Summary: The result was still good. Human nature generally includes competitiveness, entertainment, and sociability. Human nature is also the most primitive ability. Formulating a reasonable assessment mechanism to stimulate it will surely get twice the result with half the effort.
-04- Remove Base Salary, Pay According to Work
In November, the product gradually entered the off-season. The team had relatively less work on sales. So how to motivate the team? At the end of October, the distributor called me again.
His concern was that employees had less and less to do. In the past, employees had accepted low income in the off-season and also accepted that they could take a breather and adjust their state. This mentality's most fatal harm is affecting team stability, and some people have thoughts of leaving.
My answer was: in the off-season, do market work; in the peak season, do sales. As long as employees are busy, they won't be fickle. Now the best thing you can change is the base salary; you should remove it. At this point, the distributor might ask, "Removing the base salary will cause faster employee turnover." Actually, that's not the case.
First, we are not afraid of the loss of low-ability personnel; these people are also the targets of accelerated blood replacement and elimination. Second, people with high comprehensive ability will have higher base salary income. Removing the base salary doesn't mean taking it away, but pooling everyone's base salary into a big pot for secondary distribution.
The specific performance salary model is: I previously served at Jinmailang, and there was a very capable distributor who had already removed the base salary for sales personnel. Jinmailang's terminal system was very good, breaking down the basic actions of daily market display and making them vivid, assigning points, and converting points into currency. As long as you are willing to work, you get more points and a higher base salary.
Nongfu Spring's system doesn't have this function yet, but it can be quantified as market standards for closed channels. I sent him several pictures of other brands' off-season market actions.
Although there is no base salary, for closed channels like internet cafes, billiard halls, restaurants, etc., you can set a reward for making such standard displays, and you can also set rewards above or below this standard. Break the "big pot" of base salary, let capable people earn more money, and let incapable people voluntarily leave.
Final Thoughts:
I told this distributor that this is a salary performance cycle. Next year, with slight adjustments based on actual conditions, it can continue to be used. In fact, it's not easy for distributors to balance the interests of the company and employees, and any product has different sales stages throughout the year.
So performance assessment cannot be static, nor can it change drastically at all times. It should be gradual, turning management into incentives, using human nature stimulation as a means, and aiming for sales and profit growth.
Finally, I give all distributors eight words about human nature: When wealth gathers, people scatter; when wealth disperses, people gather!