Preface: Mr. Wu from Yanji, Jilin Province, is an agent for Arawana, Wang Shouyi, Jiajia, Laoganma, Haitian, Liby, Xinxiangyin, and Qingfeng, with 1,600 terminal outlets and a scale of 70 million yuan. When closing the books in 2018, Mr. Wu found that the company only reached the break-even point, with no profit. He analyzed that the company's management was problematic, and in August 2019, he began company reforms. By the end of January 2020, Mr. Wu had increased net profit from 0 to 2%. How did he do it?

Company Profile: Mr. Wu is a distributor of multiple categories (grain and oil, daily chemicals, condiments) and multiple brands, covering Yanji and Hunchun in Jilin Province. Before the reform, the company had over 20 salespeople, 15 logistics drivers, 6 warehouse staff, 10 office employees, and 15 delivery vehicles. At the beginning of 2019, Mr. Wu was puzzled by the continuous decline in annual net profit and didn't know how to solve it.

Mechanism Before Reform: Mr. Wu is an agent for multiple categories and brands in two prefecture-level cities, with different brands in Yanji and Hunchun, and different management for salespeople. In Yanji, salespeople were divided by region and responsible for all brand sales. In Hunchun, they were divided by brand into two groups: one for Yihai Kerry, the other for Liby.

Salespeople in both cities had the same salary structure. Before the reform, the compensation structure was base salary + commission + allowance + insurance. The base salary was 1,500 yuan; commission was calculated per piece without tiers, e.g., 5 yuan per piece for high-profit products, 3 yuan per piece for low-profit products; allowance consisted of phone and commuting subsidies, about 200 yuan per month. Salespeople averaged 3,000 yuan per month, which was above average locally. Insurance included pension and housing fund.

Under the old compensation mechanism, Mr. Wu was forced to "negotiate" with employees daily, with employees requesting "Competitors have promotions, but we don't, so we can't sell. Give us some gifts or invest in display fees." Mr. Wu admitted he was helpless: if he didn't give gifts or fees, goods wouldn't sell; if he did, net profit decreased. In this vicious cycle, Mr. Wu found that although sales hadn't declined in the past two years, the company wasn't making money, and salespeople's wages were low.

In July 2019, Mr. Wu attended a course by Mr. Xu Min (founder of Anshan Hongye Hengda Trading Co., Ltd.) on "Salary and Performance Plan Implementation," and believed that Xu Min's compensation mechanism and corporate governance were practical and could solve his company's problems, which was the reform method he had been seeking. After the course, Mr. Wu used his authority as the boss to strongly persuade all executives, and in August, he began reforming company management.

New Sales Compensation and Performance Mechanism Mr. Wu switched to a more powerful financial software for data reporting to support the new mechanism. According to Xu Min's compensation mechanism, salespeople's compensation was changed to base salary + net profit * dividend ratio + special incentives + fuel allowance. The base salary increased from 1,500 to 2,000 yuan, phone and commuting subsidies were discontinued, and insurance remained unchanged. Net profit dividend is (gross profit - operating costs) * dividend ratio; operating costs refer to all expenses incurred by the salesperson and the stores they manage, such as the salesperson's own salary, store display fees, accounts receivable interest, in-store miscellaneous fees, promoter wages, rebate inventory differences, etc.

The dividend ratio varies by sales department. Mr. Wu directly applied Hongye Hengda's ratios (10% for traditional channel small stores, 4% for modern channel supermarkets) to 2018 sales data for calculation, and found that the dividend-based salary was slightly higher than the actual 2018 salary (about 300-500 yuan more per month). Mr. Wu believed that the dividend ratio designed by Xu Min was also suitable for his company. Mr. Wu turned KPI assessments into special incentives, which were determined based on different market needs at different stages of the company. Additionally, Mr. Wu added fuel allowances for salespeople who drove to stores (600, 800, or 1,200 yuan, depending on the size of the area).

Implementation Process of Compensation and Performance Reform To make the sales department reform smoother, Mr. Wu took two steps. First, he reformed the traditional channel small store business. In the second month of the reform, wages increased, and small store business accepted the new mechanism smoothly. After small store business stabilized, Mr. Wu reformed the modern channel supermarket business, which had some setbacks. Mr. Wu's territory had 27 large stores plus 2 chain supermarkets, with 4 salespeople responsible. After the reform, wages for supermarket business did not improve significantly. Mr. Wu attributed this to low personnel efficiency; salespeople weren't generating enough profit for the company and themselves. To address this, he adjusted staffing and eliminated one salesperson. This improved efficiency, increased wages for the remaining salespeople, and store sales did not decline. Mr. Wu frequently conducted training on the reform and had private conversations with employees, explaining that the reform's intention was for employees and the company to earn together, teaching them how to calculate wages and how to earn high wages.

Results After Reform In November 2019, Mr. Wu noticed that salespeople's stance changed: they no longer randomly requested product discounts; they thought carefully before giving gifts; moreover, they were more willing to promote new products and sell high-profit products, and there were fewer near-expiry products. Mr. Wu was most impressed that previously, near-expiry or expired new products could be dozens or even hundreds of pieces per store, but now this basically doesn't happen. By the end of January 2020, the company's net profit increased to 2%. By March, with the epidemic stabilizing, employees were more motivated and willing to work overtime to boost sales. Overall, compared to Yanji, Hunchun's business was better. Mr. Wu analyzed that this might be due to a better market foundation and stronger team cohesion. In fact, wages for salespeople in both places increased, with average wages rising from 3,000 yuan to 4,500-5,000 yuan, and the highest monthly salary reaching 7,582 yuan. Mr. Wu also implemented the "points-based management" system from Xu Min's course. Points-based management breaks egalitarianism among employees, ensuring excellent employees don't suffer. This article won't detail it. Mr. Wu's next step is to reform logistics and office compensation and performance.

Insights from Mr. Wu's Reform

  1. From Mr. Wu's reform, it's clear that at the beginning, most executives strongly oppose reform. At this time, it's crucial whether the boss has a firm determination to reform and can persuade executives to agree.
  2. According to Mr. Wu's experience, company reform should be gradual, not seeking to achieve everything at once. Mr. Wu attended Xu Min's course three times in six months, with the second and third times bringing reform puzzles to the course, gaining more.
  3. During reform, personnel turnover is inevitable. Distributor bosses need not worry excessively; those who leave are often the ones who would be eliminated anyway. Injecting fresh blood moderately is more beneficial to the company.

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