You know when you hear something all the time, how it can become commonplace. Then you hear a new twist on it that you have never heard before and it sounds interesting but you are not sure how relevant it is. Then you hear it over and over and you think, there has to be something to this. Well that happened to me this week.
When you have the opportunity to talk to as many different businesses as we do, it is always interesting to discover new revenue models and learn about what channels feed the revenue of the businesses. In almost every case they are generating revenue from new channels from where they have been historically selling and looking to expand that strategy. Following the revenue makes sense. This also leads to interesting and evolving compensation models for businesses.
Take a firm that compensates sales teams on deal margin, not revenue. Sounds like a rare model, doesn’t it? I thought it was when I first heard it. Then this week I heard about the same model multiple times. Businesses are asking their Sales organizations to bring more profitable business and paying them more to do it, a classic win – win.
There is a catch to this strategy. As the sales team prepares the proposal / quotation, they need to clearly and quickly have access to cost. To complete the model effectively, the construct of the deal needs to be maintained throughout the order fulfillment process so the gross profit calculated on the quote is actually produced and the expected gross margin realized.
This really strains an order fulfillment operation when you consider stocking and non-stocking (drop ship) business models for Value Added Resellers (VARs) and Distributors.
We continue to see more of this evolving business model and strive to keep our Quote to Cash process ready to completely track the margin sold with the margin realized.
With a global marketplace, unique supplier relationships and order fulfillment models, I see margin management evolving into a natural compensation model, which makes sense.