Right now, businesses are under more pressure than ever to reduce costs.
Between the downturned economy and a customer base not as willing to spend money, many boards and CEOs are demanding their companies trim a significant amount of fat to get through the hard times.
But if you are a VP of Sales being told to reduce costs, what is the best way to approach these cuts to minimize damage to the company and your team?
It’s a tough job, but when the time comes, somebody has to do it.
The key when it comes to cuts is to ensure you’re careful about what, who, and how you cut.
Be as precise as you can to minimize the effects on your company’s performance.
Sales should be one of the last places to reduce costs — after all, salespeople are the engine of the revenue machine. However, if there are weak links or unnecessary roles on your team, that’s the first place to consider trimming.
Look for poor performers that would probably end up being let go under normal circumstances anyway.
Next, look at newer reps that aren’t scaling the way you’d like. Cut carefully from the bottom and work your way up. Use a scalpel here, not an axe.
Evaluate the tools your team is using to see if there’s any underutilized sales software that could make your team more efficient or any tools that are being left unused for a reason. If you find tech you’re wasting money on, that is low-hanging fruit to reduce spending.
Don’t forget that sometimes spending a small amount can help you save big. Look to upgrade your tech stack with solutions that can help your team boost productivity and do more with less in these uncertain times.
Layoffs and Reduced Salaries
Ok, so you’ve made initial cuts from the most obvious places. But what if the cuts have to go deeper?
If you must cut deeper to get the cost of the team down, and you are left with people that you don’t want to cut, you have two choices — fire quality workers or lower the salaries of all of your salespeople.
These are both difficult options with serious ramifications.
When it comes to making big layoffs to cut costs, the rule of thumb is to do it all at once. Several rounds of layoffs will only destroy morale and hurt the focus of your team. They’ll spend their energy wondering if they’re the next to go, and they’ll spend their time looking for other employment options.
That being said, in highly uncertain times, you don’t want to cut deeper than you absolutely have to — after all, no one knows how long this situation will last.
So, there is a tradeoff to consider. Either make one large cut and risk cutting too much, or make smaller cuts as needed as the economic situation drags on.
There’s no right answer here. You have to look at your individual situation and try to make the best decision you can with the information you have.
If you have to cut your sales team’s salaries, it’s better to lower the base than lower the bonus. With the prospect of a healthy bonus, your team will be better motivated to sell.
Your best reps care a lot more about their bonus than the base anyway, and you don’t want your top reps jumping ship right now.
Remember, even in a bad economy, your top reps have many employment options.
If you’re dealing with non-salespeople, who are less bonus driven, you can look to spend less by lowering everyone’s pay across the board with the goal of avoiding furloughs or firing. It may not be popular, but if you’re honest with your team about the problem, most would rather see their pay drop than lose their paycheck and healthcare altogether.
One fair way to balance this out is to transition to a 4-day work week, with everyone on the team taking a 20-40% base salary reduction. Bonuses continue, everybody keeps their health insurance, and your employees get 3-day weekends to recharge until things heat back up.
Be Careful Who You Cut
Sure, cutting is a quick way to save money… That is, as long as you don’t lose someone who brings in more money than they take away. As the old saying goes, “Don’t throw the baby out with the bathwater.”
There are companies firing reps who bring in $750,000 a year that cost only $200,000. Those reps were paying for themselves (and then some!) month after month.
As a sales leader, it’s important to demonstrate to your CFO what they stand to lose if the wrong sales reps are fired. Show upper management how much your reps cost versus how much money they bring in. Break it down for them on a monthly basis.
Stand up for your top-performers — they’ve shown up and worked hard for you, now it’s time for you to show up for them.
Adjust Your Compensation Plan
Margin compression is a huge obstacle to overcome in a down economy.
Consider switching up your compensation plan if you have a product with tightening margins or if margins need to be defended.
One thing you can try is to comp your reps on profit margin instead of on revenue.
If your profit margins are 30% and your rep gives a 15% discount, it will take two deals to match the worth of a deal at full price.
In that situation, if your rep’s comp plan is aligned with revenue, that 15% discount only costs them 15% of their commission. But if the comp plan is aligned with profit, that 15% discount just cost them half of their commission.
If you align the comp plan with the profit line, your team will be incentivized to defend the margin instead of the revenue line.
In general, compensation plans should be designed to align with your business. This doesn’t necessarily mean you should change how much your reps are paid — or that you should focus on target earnings — but changing the plan to reward your most profitable reps is a great way to keep your team motivated and your sales high.
Recruit Newly Available Talent
When thinking about where the weak links are on the team, remember that it’s now a buyer’s market in regards to finding new talent. With the right hire, your team’s weakness could become a strength.
During a strong economy with low unemployment, it’s difficult to recruit and hire great sales talent. However, right now, lots of great reps are available that would love to work for your company.
If it comes time to cut less productive workers, remember that there are many eager and talented people out there who would jump at the opportunity to work for you.
Look to replace the low-performing reps you’ve laid off with reps who cost less and are capable of bringing in more revenue.
Be very specific about the criteria a candidate needs for the sales role they’re looking to take. Qualifying your candidates based on the role’s desired characteristics is also important, as it allows the prospective employee to demonstrate that they have the traits the role demands.
These traits include the ability to handle objections, negotiate, be empathetic, and (most importantly) close the deal.
You should also re-think your onboarding process now that everything has shifted to remote work.
New hires used to be able to learn hands-on in the office. Now they’ll need a more streamlined and thorough onboarding program.
The better your onboarding, the faster your new hire will ramp to peak efficiency, and the more revenue they’ll bring in.
This Is a Time of Opportunity
While it’s certainly a difficult time for any VP of Sales, it’s also a time that presents many unique opportunities.
By adapting to the new circumstances of the industry and the economy, you can not only ensure your team weathers the storm, but you can help them come out on the other side re-energized and empowered to succeed.