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SALES COMP PLANNING
February 23, 2004
CURRENT SITUATION
• We pay $7.25/hr + $17 per Activation
• We have 70°/o of our Comp Pay as Fixed, only 30°/o is Variable
• We have 30°/o of our Reps achieving 0-9 Activations per Month, and they do not generate enough Gross Margin to "cover" their fixed labor costs (another 20°/o get 10-19 Activations/Month)
NEW IDEA
• Why not drop the hourly rate significantly, and consider the base wages as a "draw" against commission?
• Instead of $7.25/Hr + $17/Act, why not something like $3.00/Hr +$50/Act?
• Could we go as far as NO hourly wage + $75/Act, a Ia Wireless Solutions?
ASSIGNMENT
• Let's model the current environment, add some "what if's" under different possible scenarios, and "try them on for size"
• How to do that?
• Pickering spends 20 hours over the weekend building and validating the models, and prepare a summary for Monday's discussion
ASSUMPTIONS
• September 2003 Activations (77K)
• These activations are paid in November
• 3,600 Sales Reps (exclude FMs)
• SIS only (for now)
• Base Pay and Phone Comm only (for now)
• Excludes Accessories, Spiffs, Bonus, Dish, Training, OT, etc.
ASSUMPTIONS (Cont'd)
• By "backtesting" against prior period data, we can validate the components of cost plus the total cost of various options
• However, this is a "static" model test (total pay & total activations were kept constant)
• When we actually change the camp plan, SR behavior will change (some will move "up" and some will move "out)
STRATIFICATIONS
• We have a diversified population of reps
• Stratify by activations/month (1-155)
• Mean (Average) is 21 activations/month
• Stratify by Hours Worked/Month (grouped into major categories: 0, 40, 60, 80, 100, 120, 140, 160+ hours/month)
• Mean (Average) is 116 hours/month
PAY VARIANCE GRAPH
• This graph shows the change in total pay for implementing the New Plan vs. the Old Plan
• The overall average impact of the $3.00/Hr + $40/Act plan is a "wealth transfer" from those who achieve <22 activations/mo. to those who achieve 23+ per month
• The "cutover point" is different for each hourly strata and for each possible $/Hr + $/Act combination
f.flU.I
20,000
0
(20,000)
~ (40,000) ~ ~
~ ><( a. _J
(60,000}
~ (80,000} 0 1-
(100,000}
(120,000)
(140,000)
TOTAL PAY VARIANCE· OLD VS. NEW $3.00/Hr. + $40 Avg Comm
""'•:•,•,•,•,•,•,•:••,•,•/',•,•,•,•,•,•,•,•lli,illi, lll~UIJdJ,lbtdi,!,~/IIII,IJj~,J,,Inl'ln, ,o,o,o,o, \;, "'' 1,1/, ~~' ln'c' ,;,~, m' ,J, ''' ,\ cccln,,' n ,\,' 43 49 55 61 67 73 79 85 91 97 103 109 115 121 127 133 139 145 151 157
ACTIVATIONS
COMPENSATION/HR GRAPH
• The Old Plan (darker diamonds) is a flatter line, starting at $7.25/Hr and extending up to around $20.00/Hr for top SR's
• The New Plan (lighter squares) is a steeper line, starting at $3.00/Hr and extending up to $35-$40/Hr for top SR's
TOTAL COMPENSATION PER HOUR 45.00
IIi 40.00
111!11~
NEW II
! 35.00 II I ~~·--·- .. ---
-~~
II •• IIIII
30.00
tY-Illig llfl 5 25.00 . --~-~-~6 - -- -
IIi Ill • • :c II • 0:::: •
~ 20.00 •• ~~ ........ l (F)- . . .. OLD
,~··- 'f/111111 15.00 ..,.~~~· . 10.00 I
I 5.00 ---·-···- -------- ~!
0.00 r-BIII- • 11181111 llllli.IHIII M4l ' I 0 20 40 60 80 100 120 140 160 1801
ACTIVATIONS PER MONTH I I
STACKED AREA GRAPHS
• The next two graphs show fixed pay and variable pay under the Old Plan vs. the New Plan
• The huge 'Shift into variable pay (darker area) is evident.
125,000 CURRENT FIXED & VARIABLE PAY MIX
.__ 100,000 --- -(f)
0 (J
!z !0 I~ 75,000 :(f)
iz I l.U in.. ~ .
0 50,000 u
,-I i<l: It-
: ~ 25 000 I ' I
I I i
0
I VARIABLE]
1 10 19 28 37 46 55 64 73 82 91 100 109 118 127 136 145 154 ACTIVATIONS
125,000
t-100,000 en 0 u :z 0 i= 75 000 <:( ' en z UJ 0..
~ 50,000 (.) _J
~ 0 1:- 25,000
0
NEW IDEA $3.00 & $40/ACT FIXED & VARIABLE PAY MIX
I VARIABLE I
1 10 19 28 37 46 55 64 73 82 91 100 109 118 127 136 145 154 ACTIVATIONS
COST/ACTIVATION GRAPH
• Under both plans, we have very steep leverage downward of cost/act from 0-9 activations and we have a relatively flat cost/act after exceeding 50 activations/mo.
• The crossover point is 22 activations/mo. • At 9 acts/mo, the New Plan has a $75/act
cost, where the Old Plan was $1 02/act • At 6 acts/mo, the New Plan has a $92/act
cost, where the Old Plan was $143/act
z 0 -
350
300
~ 250 > t= ~ 200 0:: w 0...
~ 150 0 u
100
50
0
TOTAL COST PER ACTIVATION
----- - ,_ -- I
' I I
- - =.1 ~ .. ·r =t-=:.=t=:_: 1 ~ = : . = 1. ·!fi----t-----t--~--t--+----+------+----111-t---,i----11!1 IIBtHI, lljHII!I J--..J--.J 0 1 0 20 30 40 50 60 70 80 90 100 11 0 120 130 140 150 160
ACTIVATIONS PER MONTH
ONE-PAGE MATRIX
• This page contains the key data to analyze the differences of 7 possible combinations of fixed and variable pay
• All the detail of each has been tested
• We have to decide which mix of fixed and variable is most appropriate
• We have to be ready to replace people we will lose
·.:.·, MONTHLY COM MISS;~~ RATE ~Oivir A~iSJN TABLe· HOLDING Fi.JLL $FLAT
REVENUE GROSS PROFIT EE COMMISSIONS BASE PAY Activa- Sept Gross Total EE EE Comm Base Base
Rate Plan tion Activa- Profit Gross Comm Comm %Gross Pay Pay Strata Mix !ions $/Act Profit$ Rate $ Profit $/Act $
(A) THE WAY WE'VE BEEN DOING IT ($7.25 AVERAGE WAGE) 0.00-29.98 18.8% 14,524 60.71 881,748 10.00 145,240 16.5% 39.51 573,869
29.99-39.98 21.3% 16,437 151.32 2,487,230 15.00 246,555 9.9% 39.51 649,455 39.99+ 59.8% 46,090 201.02 9,264,966 20.00 921,800 9.9% 39.51 1,821,097
100.0% 77,051 163.97 12,633,944 17.05 1,313,595 10.4% 39.51 3,044,420
(B) SUGGESTION FROM THE LAST MEETING (SAME WAGE, ADJUST COMMISSIONS/RATE PLAN) 0.00-29.98 18.8% 14,524 60.71 881,748 8.00 116,192 13.2% 39.51 573,869
29.99-39.98 21.3% 16,437 151.32 2,487,230 15.00 246,555 9.9% 39.51 649,455 . 39.99+ 59.8% 46,090 201.02 9,264,966 25.00 1 '152,250 12.4% 39.51 1,821,097
100.0% 77,051 163.97 12,633,944 19.66 1,514,997 12.0% 39.51 3,044,420
(C) DOWNWARD REVISION NECESSARY TO MATCH COMP $ ($7.25 AVERAGE WAGE) .. .
0.00-29.98 18.8% 14,524 60.71 881,748 6.00 87,144 9.9% 39.51 573,869 29.99-39.98 21.3% 16,437 151.32 2,487,230 16.00 262,992 10.6% 39.51 649,455 ' 39.99+ 59.8% 46,090 201.02 9,264,966 21.00 967,890 10.4% 39.51 1,821,097
100.0% 77,051 163.97 12,633,944 17.11 1,318,026 10.4% 39.51 3, 044,420
(D) NEW IDEA $6.00 BASE + $24 WEIGHTED AVERAGE COMMISSION 0.00-29.98 18.8% 14,524 60.71 881,748 8.00 116,192 13.2% 32.70 474,926
29.99-39.98 21.3% 16,437 151.32 2,487,230 21.00 345,177 13.9% 32.70 537,480 39.99+ 59.8% 46,090 201.02 9,264,966 30.00 1,382,700 14.9% 32.70 1,507,114
100.0% 77,051 163.97 12,633,944 23.93 1,844,069 14.6% 32.70 2,519,520
(E) NEW IDEA $5. 00 BASE + $29 WEIGHTED AVERAGE COMMISSION 0.00-29.98 18.8% 14,524 60.71 881,748 11.00 159,764 18.1% 27.25 395,772
29.99-39.98 21.3% 16,437 151.32 2,487,230 28.00 460,236 18.5% 27.25 447,900 39.99+ 59.8% 46,090 201.02 9,264,966 36.00 1,659,240 17.9% 27.25 1,255,929
100.0% 77,051 163.97 12,633,944 29.58 2,279,240 18.0% 27.25 2,099,600
(F) NEW IDEA $4.00 BASE + $35 WEIGHTED AVERAGE COMMISSION 0.00-29.98 18.8% 14,524 60.71 881,748 13.00 188,812 21.4% 21 .80 316,617
29.99-39.98 21 .3% 16,437 151.32 2,487,230 32.00 525,984 21.1% 21.80 358,320 39.99+ 59.8% 46,090 201.02 9,264,966 43.00 1,981,870 21.4% 21.80 1,004,743
100.0% 77,051 163.97 12,633,944 35.00 2,696,666 21.3% 21.80 1,679,680
(G) NEW IDEA $3.00 BASE + $40 WEIGHTED AVERAGE COMMISSION 0.00-29.98 18.8% 14,524 60.71 881,748 14.00 203,336 23.1% 16.35 237,463
29.99-39.98 21.3% 16,437 151.32 2,487,230 37.00 608,169 24.5% 16.35 268,740 39.99+ 59.8% 46,090 201.02 9,264,966 50.00 2,304,500 24.9% 16.35 753,557
100.0% 77,051 163.97 12,633,944 40.44 3,1 16,005 24.7% 16.35 1,259,760
(H) NEW IDEA $2. 00 BASE + $46 WEIGHTED AVERAGE COMMISSION 0.00-29.98 18.8% 14,524 60.71 881 ,748 17.00 246,908 28.0% 10.90 158,309
29.99-39.98 21.3% 16,437 151.32 2,487,230 43. 00 706,791 28.4% 10.90 179,160 39.99+ 59.8% 46,090 201:()2 9,264,966 56.00 2,581,040 27.9% 10.90 502,371
100.0% 77,051 163.97 12,633,944 45.88 3,534,739 28.0% 10.90 839,840
(I) NEW IDEA $1 00 BASE+ $51 WEIGHTED AVERAGE COMMISSION 0.00-29.98 18.8% 14,524 60.71 881,748 19.00 275,956 31 .3% 5.45 79,154
29.99-39.98 21.3% 16,437 151.32 2,487,230 47.00 772,539 31.1% 5.45 89,580 39.99+ 59.8% 46,090 201.02 9,264,966 63.00 2,903,670 31.3% 5.45 251,186
100.0% 77,051 163.91 12,633,944 51.29 3,952,165 31.3% 5.45 419,920
(J) NEW IDEA $0 00 BASE+ $57 WEIGHTED AVERAGE COMMISSION 0.00-29.98 18.8% 14,524 60.71 881,748 21.00 305,004 34.6% 0.00 0
29.99-39.98 21 .3% 16,437 151.32 2,487,230 51.00 838,287 33.7% 0.00 0
39.99+ 59.8% 46,090 201.02 9,264,966 70.00 3,226,300 34.8% 0.00 0 1100.0% 77,051 163.97 12,633,944 56.71 4,369,591 34.6% 0.00 0
*NOT INCLUDING ACCESSORIES, SPIFF, DISH, BONUS, OT, TRAINING, OR ACCF.! ERA TOR
Base %Gross
Profit
65.1% 26.1% 19.7% 24.1%
65.1% 26.1% 19.7% 24.1%
65.1% 26.1% 19.7% 24.1%
53.9% 21.6% 16.3% 19.9%
44.9% 18.0% 13.6% 16.6%
35.9% 14.4% 10.8% 13.3%
26.9% 10.8% 8.1%
10.0%
18.0% 7.2% 5.4% 6.6%
9.0% 3.6% 2.7% 3.3%
0.0% 0.0% 0.0% 0.0%
TOTAL REP COMP* I IOta! Pay $/Act
Total Total Pay Pay % Gros~t $ Profit [
49.51 719,109 81.6% 54.51 896,010 36.0% 59.51 2,742,897 29.6% 56.56 4,358,015 34.5%
47.51 690,061 78.3% 54.51 896,010 36.0% 64.51 2,973,347 32.1% 59.17 4,559,417 36.1%
'"'--45.51 661,013 75.0% 55.51 912,447 36.7% 60.51 2,788,987 30.1% 56.62 4,362,446 34.5%
40.70 591 ,118 67.0% 53.70 882,657 35.5% 62.70 2,889,814 31.2% 56.63 4,363,589 34.5%
38.25 555,536 63.0% 55.25 908,136 36.5% 63.25 2,915,1.69 31.5% 56.83 4,378,840 34.7%
34.80 505,429 57.3% 53.80 884,304 35.6% 64.80 2,986,613 32.2% 56.80 4,376,346 34.6%
30.35 440,799 50.0% 53.35 876,909 35.3% 66.35 3,058,057 33.0% 56.79 4,375,765 34.6%
27.90 405,217 46.0% 53.90 885,951 35.6% 66.90 3,083,411 33.3% 56.78 4,374,579 34.6%
24.45 355,110 40.3% 52.45 862,11.9 34.7% 68.45 3,154,856 34.1% 56.74 4,372,085 34.6%
21.00 305,004 34.6% 51.00 838,287 33.7% 70.00 3,226,300 34.8% 56.71 4,369,591 34.6%
VAR VS. FIXED Variable . Fixed
%of %of Total Pay Total Pay
20.2% 79.8% 27.5% 72.5% 33.6% 66.4% 30.1% 69.9%
16.8% 83.2% 27.5% 72.5% 38.8% 61.2% 33.2% 66.8%
13.2% 86.8% 28.8% 71.2% 34.7% 65 .3% 30.2% 69.8%
19.7% 80.3% 39.1% 60.9% 47.8% 52.2% 42.3% 57.7%
28.8% 71.2% 50.7% 49.3% 56.9% 43.1% 52.1% 47.9%
37.4% 62.6% 59.5% 40.5% 66.4% 33.6% 61.6% 38.4%
46.1% 53.9% 69.4% 30.6% 75.4% 24.6% 71 .. 2% 28.8%
60.9% 39.1% 79.8% 20.2% 83.7% 16.3% 80.8% 19.2%
77.7% 22.3% 89.6% 10.4% 92.0% 8.0% 90.4% 9.6%
100.0% 0.0% 100.0% 0.0% 100.0% 0.0% 100.0% 0.0%