Sales Incentive Program Management as a Profit Center for CFO’s of Large Channel Members and Distributors

Author: 
George Kriza, CEO, MTCPerformance

For most large resellers or distributors, sales incentive programs for internal sales teams get little attention from top financial executives inside their organizations. That’s probably because they don’t realize a huge opportunity to drive millions of net profit dollars straight to the bottom line, while at the same time underwriting compensation for the sales team. The opportunity to benefit from successful sales incentives programs is there, executives just need to understand how to uncover them.

Most incentive programs are managed in a highly chaotic, manual way by individual merchandising, sales or marketing executives (or low-level managers). As such, they are typically absorbing independent national programs provided by their vendors. Each vendor runs their own program and strategy, often with zero visibility to reseller executives. The result is unknown impacts on inventory positions and key vendor alliances. But beyond that, there is a sizeable profit opportunity hiding there.

Most multibillion-dollar reseller and distributor organizations attract millions of incentive dollars. They may find that anywhere from 10 to 40 or more vendors are running such programs concurrently. Let’s contemplate this example:

Reseller “A”, a $5B reseller with 3,000 salespeople.
Currently attracts $5mm of incentive programs annually.
Number of Vendor Sponsors: 18
Salespeople benefit: $5mm.
Reseller Benefit: $0

Reseller “A”, after integrating a BPM (business process management) platform now attracts:
$25mm of annual incentive payments.
Number of Vendor Sponsors: Grows to 100+
Salespeople Benefit: $25mm.
Reseller Benefit: ?  (That’s what we’re here to discuss.)

After implementing the BPM platform, the reseller can actively invite vendors to enroll in their program – prohibiting them from deploying their previous national programs. For each vendor enrolled, there is an annual fee to be included in the program, which can be split evenly between the incentive provider and the reseller. If the annual fee is $500 and the number of vendors sponsoring the incentives on the platform increases to 100, that’s $25,000 annually net to the bottom line.

Another strategic method to implement is for the reseller or distributor to include a surcharge for each incentive dollar passing through the system. That surcharge is a shared burden by the vendor and the sales employee. Typically, the total spread is 25 percent.  Since the incentive payments have now grown to $25 million, the harvest by the reseller is now $6.25 million annually. Of course there are fees from the incentive provider to run the program, typically averaging eight to 10 percent, depending on volume. At 10 percent, the $6.25 million becomes reduced to a net of approximately $3.75 million net.

So recasting the above chart, post implementation:

Reseller “A”, after integrating a BPM (Business Process Management) platform now attracts:
$25 million of annual incentive payments.
Number of Vendor Sponsors: Grows to 100+
Salespeople Benefit: $25 million
Reseller Benefit: In excess of $3.75 million annually

Clearly, this is a strong financial model for the reseller to implement. They benefit from streamlined, visible management of all incentives. They benefit from greater vendor support of their marketing programs. They benefit from sales compensation being supported by increased vendor payments. And yes, they benefit from the $3.75 million.

This newly uncovered revenue stream opportunity seems to be worth a little research by the CFO and rest of the executive team.

George Kriza is founder of MTC Performance, a leading innovator of sales incentive management solutions for top Fortune 500 and growing middle market companies. He has over 30 years of experience in the personal computer and consumer electronics industries. Since founding MTC Performance, he has focused on web-based technologies designed to break new ground in facilitating the success of incentive programs.