In the process of digesting all of the regulatory change that is
being thrown at our industry, it is easy to overlook implications
for change and later realize that we are behind the curve. One area
that seems to be a potential trouble spot that we need to get in
front of is sales compensation.
Many providers compensate their sales reps with a formula that
is in some way connected to the gross profit generated by the rep.
Competitive bidding will cause an enormous decline in gross profit
margin for most providers (without respect to location). On top of
that, we should expect an increase in cost of goods as a result of
a pass-through of the excise tax imposed by the recent health care
reform act, making gross profit even thinner.
Profits that can sustain a business will not be achievable with
the current percent of revenue being consumed by the sales
function. So, a forward-looking transition to new commission
structures should commence now. Whatever the new structures look
like, a one-size-fits-all kind of solution won't be practical.
Providers with Medicare contracts in competitive bidding areas will
have different customer acquisition dynamics than those in rural
areas. That should be considered in the design of the commission
structure.
Regardless of the dynamics associated with customer acquisition,
sales compensation as a percent of revenue will have to decline.
That does not mean sales compensation must decline, but to keep
that from occurring, providers will have to make the way for sales
reps to become more efficient. Some of the places that hold part of
the solution include market intelligence, target markets, sales
metrics, differentiation, communication channels and
technology.
Managers should start with sensitivity analysis to begin to
frame their target. After determining the new (most likely lower)
percent of revenue that can be allocated to sales compensation,
attention has to turn to how to sustain the sales force. If
increased sales per rep is a part of the plan, then consider these
possibilities.
- Market Intelligence
Does the company know everything there is to know about who
influences the purchasing of what kinds of DMEPOS? Who in the
market is seeking to benefit from that influence, and what is the
value proposition they are using? Which entities might enter the
market, including start-ups, manufacturers and providers in
contiguous and non-contiguous markets? To the same extent that
managers and sales reps accept incomplete market intelligence, they
must also accept inefficient sales efforts.
In this context, markets should be defined with product-payer
combinations. Years ago we established that all markets are not
equal. Gone are the days that a sales rep can spend a breath asking
for anything short of the best customer or be compensated for
acquiring an off-target customer. The way to determine a company's
best customers is to apply activity costs to the product-payer
combinations and identify those that make the greatest net profit
contributions. Gross profit margin analysis will produce deceiving
results.
These must reflect the target markets and the company's progress
in acquiring the target revenue. They must also be reflected in the
sales compensation, evaluations and communications with the sales
team. Frequency and timeliness of reporting are critical and may
require changes in business processes to achieve frequency goals,
and technology to achieve timeliness and productivity goals.
This may be the most promising area for companies to increase
sales effectiveness. Differentiation is about creating,
communicating, and proving that you have the best value proposition
in the market. Think of the value proposition as what you give in
exchange for what you ask the referral source and the patient to
give up. The referral source gives up time, risk to reputation,
etc. The patient gives up time, money, risk of quality of life,
etc. Market intelligence will help you understand the needs of the
value proposition.
Our industry is deeply entrenched in one-on-one communications
with referral sources. Opportunity exists, and efficiency demands,
that some of that effort be replaced with Web-based channels.
Social networking is one of the areas for which new norms must be
developed. Another is provider websites. The role of the website
must evolve to something similar to the role of a sales rep —
identifying leads, nurturing leads and converting them into
referral sources or patients.
Providers need to learn from their vendors. Most of their reps
don't go to the office; they operate from home with mobile
technologies that let them manage customer relationships from the
road. They also get feedback on their standing via mobile
technologies.
For example, plenty of opportunity exists to deliver in-services
to several doctors' offices at the same time with webinar
technology, for sales reps to write call reports on smartphones or
WiFi-enabled laptops, and to fax and print documents with portable
equipment.
Consider your sales compensation structure now to get in front
of a potential problem.
Read more Better
Business columns.
Wallace Weeks is founder and president of Weeks Group Inc.,
a Melbourne, Fla.-based strategy consulting firm. You can reach him
at 321/752-4514 or wweeks@weeksgroup.com.
