Sales are declining, payment terms are extending, channels are being disrupted, prices are under pressure, cross-channel dumping is rampant, and gross margins are shrinking. If employees are not on the same page as the boss, can the distributor's business survive?
Reasons for Business Difficulties Given the current situation and trends, why is it increasingly difficult for distributors to do business?
- Channel fragmentation. Online platforms such as community group buying, Douyin live streaming, JD.com, Tmall, and Pinduoduo are causing significant diversion of sales.
- New business models are emerging one after another. For example, a distributor of snack foods in Hunan saw a 30% drop in sales due to the impact of snack stores. In addition, the emergence of discount warehouses and discount stores has disrupted distributors' pricing systems.
- Due to channel fragmentation and the impact of new retail and discount store formats, distributors' terminal customers are experiencing slow sell-through, low output, high return rates, and high expense ratios, making input-output ratios unfavorable.
- KA hypermarkets and A/B-class stores are mostly becoming credit-based stores, with increasing arrears and decreasing per-store output, even posing the risk of "bad stores." Combined with channel fragmentation, gross margins are declining.
- The most overlooked and unnoticed issue for bosses: the human factor. In such intense market competition, if bosses cannot "use people well and retain people," how can they face the impact of market changes?
The more difficult the situation, the more important it is to build a strong team and activate people. Only then is there a chance to turn things around; otherwise, it will only make matters worse.
Where there are people, there is the business. Having a strong team is crucial. But "having people" does not mean "knowing how to use people." How can we activate people, reduce costs, increase gross profit, and truly achieve cost reduction and efficiency improvement?
The Underlying Logic of Dividend-Based Performance It's almost 2024, and the model of base salary plus sales commission is outdated. Dividends are the necessary path for distributors to activate their people.
Let's put ourselves in the shoes of a salesperson: with a base salary of 3,000 yuan plus a 1% or 2% sales commission, from a human nature perspective, you would definitely ask the boss for special prices, promotions, and additional staff to boost sales and earn more. Issues like increasing gross margin, adjusting product mix, controlling receivables, and managing returns—these are all concerns of the boss, and they have nothing to do with you.
Is this the result our boss wants? Obviously not!
"Make employees become bosses," so that the boss's concerns become the employees' concerns. Only with unity of purpose can we stand out in difficult times. Therefore, implementing dividends and activating people is particularly important.
For sales personnel, the compensation design can use the "reverse calculation" method. What does that mean?
Suppose a salesperson is assigned 20 large stores or a specific area. Dividends are based on the gross profit generated by the salesperson in these 20 stores or the area. If he creates 30,000 yuan in gross profit, and you want him to earn 6,000 yuan in salary with no base salary, you can set the dividend at 20% of gross profit. In this way, the salesperson's salary is directly related to the gross profit he creates—the higher the gross profit, the higher the salary.
The dividend for sales personnel is calculated as: Sales - Cost - Expenses + Factory Investment = Semi-Gross Profit Dividend.
Here, "expenses" refer to the expenses that the salesperson has control over, such as his salary, floor display fees, display fees, rebate fees, customer arrears interest, gift costs, and promotional expenses. These are all considerations that the boss used to have, but now the employees are responsible for them.
In this way, only the semi-gross profit needs to be assessed, and dividends are given based on that. To achieve high gross profit, the salesperson must control expenses, shorten payment terms, and increase sales to boost total gross profit. Only then will his income increase, and the distributor's profitability improve.
Regarding the design of the dividend ratio, the best method is as mentioned above: "Gross Profit × Dividend Ratio." To determine how much employees should earn, divide the desired salary by the gross profit to get the dividend ratio.
Of course, when designing the ratio, it's best to ensure that the salesperson's total compensation is higher than or equal to their previous salary, so that employees are motivated and the company remains vibrant.
Compensation and Performance Design Plan
Once you understand the underlying logic of compensation and performance system design, it's essential to have a compensation mechanism that suits your own development. Remember, the more the boss values employee compensation, the more employees value their work. To avoid paying salespeople a "fixed salary," it's necessary to reform the salesperson's compensation structure.
Here is a simple example of a trading company's compensation structure: Salesperson's Compensation = Base Salary + Gross Profit Dividend + KPI Assessment + Other Allowances
A simple understanding of compensation: Compensation = Salary + Reward.
For a distributor, Salary = Base Salary + Dividend (or Commission), which can be understood as the living security provided by the distributor to the salesperson after they follow the rules and regulations. The base salary can be set in two ways:
- Set the base salary according to the local cost of living, not linked to task completion rate. For example: 4,000-5,000 yuan/month in first-tier cities, 2,000 yuan/month in third-tier cities.
- If your sales team is very stable, you can also design the base salary to be linked to important indicators. Indicators that can be linked to base salary include: overall product sales completion rate, sales completion rate for a specific brand, sales completion rate for a specific product line, sales completion rate for a specific bestseller, etc.
For example, a trading company that distributes beverages, grain and oil, and condiments wants to set a base salary of around 3,000 yuan based on local consumption levels. Then, the base salary is linked to the sales completion rates of different categories: 1,000 yuan × beverage sales completion rate + 1,000 yuan × grain and oil sales completion rate + 1,000 yuan × condiment sales completion rate.
It's important to note that if the base salary is linked to sales completion rates, upper and lower limits should be set to avoid excessively high or low base salaries. Excessively high base salaries may make salespeople complacent and not push hard in the market; excessively low base salaries make it difficult to attract excellent salespeople.
For example, set the upper and lower limits at 80%-120%. When the salesperson's completion rate is 70%, the base salary = 3,000 yuan × 80%; when the completion rate is 130%, the base salary = 3,000 yuan × 120%.
From the above analysis of the underlying logic of compensation and performance system design, dividends are easy to understand: Sales - Cost - Expenses + Factory Investment = Semi-Gross Profit Dividend, which will not be repeated here.
Reward = KPI Assessment, which can be understood as additional rewards given to salespeople for meeting the distributor boss's requirements. These assessment rewards should drive salespeople to make more visits, enhance customer relationships, secure more orders, and ultimately achieve the company's dual goals of sales volume and profit. In simple terms, KPI assessment means that the boss assesses what he wants and what problems the company currently has.
Allowances refer to benefits such as phone allowance, fuel allowance, and high-temperature allowance.
Core Elements of Dividend-Based Performance
To implement dividend-based performance, you must master its core elements:
1. Establish a sound organizational structure and clarify job responsibilities.
Different departments and organizations have different dividend ratios.
For example: Suppose there is a department manager and five salespeople, each with a dividend ratio of 10%. The department manager receives dividends from the five people. If the ratio is 2%, it's the same as the salespeople; if it's 3%, it's 1.5 times that of the salespeople.
Another example: Salespeople may cover small stores, large stores, or wholesale. A wholesale salesperson might have monthly sales of 2 million yuan, so his commission ratio is 5%, while a small store salesperson might have monthly sales of only 200,000-300,000 yuan, so his commission ratio is 15%.
2. Data accuracy (product, customer, personnel, and expense information).
The importance of accurate data for distributor compensation design cannot be overstated. Accurate data is essential for accurate dividends. So how to achieve data accuracy?
- Make good use of your data management software. Whether it's Yonyou, Zhoupu, Qince, GJP, or other software, use tools to solve problems rather than relying on people. Management software records and analyzes sales data, performance data, and other relevant data to ensure fairness in compensation distribution and avoid subjective interference.
By analyzing sales data, performance data, and compensation data, you can understand the contributions and performance of different employees, providing a scientific basis for dividend distribution and avoiding blind and unfair allocation.
At the same time, establish effective performance management and incentive mechanisms. Real-time monitoring and evaluation of employee performance can promptly identify and reward high performers, as well as identify and address low performance issues, improving overall team performance.
- Ensure you have an independent data specialist. In the modern business environment, data analysis is an indispensable component. Data specialists can provide objective and reliable data analysis results, which can serve as the basis for compensation distribution, ensuring fairness and transparency.
Data-based compensation distribution can avoid subjective bias and unfair situations, increasing employees' recognition and satisfaction with the compensation system.
- Refine the four major aspects: customer information, product information, salesperson information, and expense classification. By collecting and analyzing customer information, product information, salesperson information, and expense classification, distributors can better understand customer needs, product market potential and sales opportunities, personnel potential, and formulate effective cost control and expense management strategies.
3. Set a scientific compensation and performance ratio.
Compensation is about distributing money. So what is a scientific compensation ratio?
That is: Base salary accounts for within 30%, dividends account for over 50%, and KPI assessment accounts for within 20%.
From this ratio distribution, it's clear that dividends account for more than half. High dividends can more effectively motivate employees, enhancing their work enthusiasm and drive.
Final Thoughts
Compensation and performance are the key to profit growth. If you want to design a scientific compensation and performance system that can truly be implemented, you need to master more details.
At the same time, dividends are the necessary path for distributor bosses. When wealth is concentrated, people disperse; when wealth is shared, people gather. A reasonable compensation system can unleash the wolf-like spirit of the distributor team, and the business will naturally improve significantly.
On December 2-3, Mr. Li Feng, Dean of the Distributor Business School, will hold a major course on compensation and performance implementation and growth in Nanchang, Jiangxi. The main topics include:
How to scientifically design compensation and performance? (Including salespeople, department managers, logistics drivers, and promoters) Compensation and performance are the key to profit growth. How to activate people and make employees work for themselves? How to distribute money well and use people well? How to align employees and bosses on the same side? How to solve the problem of logistics drivers not putting in effort?
How to conduct KPI assessments? KPI assessment is a key part of compensation design. Doing KPI assessment well before compensation design will yield twice the results with half the effort. The course will share the ten core elements of KPI assessment, case analysis, and how to implement them.
How can distributors profit from data? No data, no decisions! Through data, you can identify problems in people, finances, goods, and customers, optimize operations, and help distributors achieve compliant management and improved operational efficiency.
How can distributors manage financial and tax risks? Financial and tax risks are like a fire in the backyard; they are crucial for distributors. The course will share the key points of the Golden Tax Phase IV audit and compliance, as well as the financial and tax risks and responses for "uninvoiced income."
Mr. Li Feng, with 28 years of experience as a distributor operator, has been deeply involved in frontline markets across the country. He has rich, solid, and practical experience in distributor operations, keen market insight, and effective and efficient methods for activating people.
Over the years, Mr. Li Feng has been committed to providing one-on-one coaching services to FMCG distributors. To date, more than 200 distributors have benefited from his coaching, and 90% of them have achieved significant growth in sales and profit after implementing compensation and performance reforms, with growth rates exceeding 30%. These distributors have consistently reported that Mr. Li Feng's guidance is very practical and can be quickly implemented in practice.
To better serve distributors, Mr. Li Feng will hold a hands-on course on compensation and performance implementation in Nanchang on December 2nd, focusing on the specific implementation methods of compensation and performance plans. Come with questions, leave with solutions, and use them immediately upon return.