Winning and keeping customers is the ultimate competitive challenge distributors face in today's business world. The sales force plays an integral role in that process, and exists to satisfy customer needs with the distributorship's available products and services. Operating in an increasingly cutthroat business environment, the effectiveness of an outside sales force — those "road warriors" who interact frequently with customers — can often determine a distributor's overall profitability.

Those road warriors need an incentive to do it right. That, according to various sales experts, requires a sales compensation plan that works for the individual and the company. Done right, a well-designed sales compensation plan can be one of the most powerful tools available for distributors.

"The competition for good salespeople has heated up," says Tom Reilly, president of Tom Reilly Training (formerly Sales Motivational Services, Inc.) in St. Louis, Mo., and author of ID's Strictly for Sales column. "The need for good compensation programs is driven by the fact that there are plenty of opportunities out there right now for good salespeople."

Besides, says Reilly, a good sales compensation plan is but one of several critical sales management dynamics that companies should have in place. To maintain a good sales culture at a distributorship, he says, one of the key elements is a compensation plan that serves to motivate the sales force and offers incentives for extra effort.

And it's not only about money. Offering cash bonuses triggers a taxable event, so Reilly says incentives like laptops and Palm Pilots can be even better for salespeople, especially if they're already earning a good wage.

"If you're willing to think outside the box, there are many other things you can use as part of your incentive plan," he says. "For example, using a special designation like an "Eagle's Club" for top achievers can go a long way in motivating the outside sales force to perform."

According to the Atlanta-based Industrial Distribution Assn.'s 2000 Employee Compensation Report, the typical outside salesperson earns about $47,000 annually, including bonuses and commissions. Beginners make around $35,000. To get to those numbers, about 32 percent of typical U.S. distributors use a salary and commission program, while 19 percent use a draw and commission, and 17 percent use a combination of salary, commission and bonus.

But it's the straight commission programs — which I.D.A. says only 12 percent of typical distributors use — that the best reps like the most, according to Tom Wood-Young, president of Wood-Young Consulting, a Colorado Springs, Colo.-based marketing consultancy that focuses on sales training and Internet marketing.

"If you really want to be successful, you must find reps who are comfortable on a commission-based program," says Wood-Young, author of Intuitive Selling. "It's easy enough to find reps to work for a base salary or a combination of salary and bonus, but if you really want to excel you have bring in the superstars, then pay them 100 percent commission with no ceiling."

When distributors pay those superstars — and their commission/salary-based colleagues — is another important component of a sales compensation plan. According to I.D.A., commissions at 61 percent of distributors are credited to salespeople upon billing, 23 percent when payment is received from the customer, and 13 percent when the order ships.

The earlier the better, says Wood-Young. Too many companies pay so far into the process that the salesperson loses sight of the direct benefit of making the sale. "I encourage companies to pay the commission when the sale closes," he explains. "That way, the rep is incentivized at the same time that the owner of the business is incentivized."

Over the last decade, a few trends have emerged in the industrial distribution sector. Not all of them, it seems, have been positive for sales reps. No longer able to drop in on big customers to chat and offer the newest and greatest products, trends like integrated supply with its reduction of vendors, the Internet with its threats of disintermediation, and an ever-shrinking customer base have all had an effect on the distributor's sales force.

Because large end users favor integrated supply, a system that decreases the number of vendors and creates first- and second-tier suppliers out of the supply base, it has probably been the most perplexing for distributor reps. I.D.A. reports that 83 percent of distributors handle their integrated supply contracts through their regular sales force, while 17 percent have separate sales forces for those contracts. According to Mitchell Roye, managing director for The Cambridge Group in Newport Beach, Calif., there is no definitive model for handling compensation issues in an integrated supply environment. In many such arrangements, he says, the sales rep is but one of several people responsible for creating and managing the deal on an ongoing basis.

"This must be factored in to how much a rep should make," says Roye, adding that in many integrated supply contracts the focus is not to simply push more product onto the customer at higher prices, a factor that leaves the rep on the full-commission plan at odds with the nature of the selling model.

As for the Internet, all of the hype about disintermediation has yet to come to fruition. At this point, Roye says many distributors are still trying to understand the Internet and how it will impact their business and their salespeople, along with how to compensate them in the digital environment. He calls the Internet an "evolving topic" for distributors, and says it will continue to get more attention as the medium becomes more pervasive in everyday business applications and processes.

When designing compensation plans for the digital age, Roye advises distributors to first differentiate whether the Internet is performing as a stand-alone sales channel — with little to no sales rep involvement — or if it's performing as a tool the sales rep uses to facilitate an electronic relationship with a client. From there, they should determine how to best compensate the sales reps without taking away from the core benefit of the Internet: the seamless sales process that requires little human interaction.

The last major market trend that's been affecting sales compensation recently is the ever-shrinking customer base distributors are fighting over. As companies continue to consolidate, distributors' sales reps are left with fewer prospective customers to call on. And as those customers become even larger, more geographically dispersed or join buying groups, Roye says distributors have witnessed a shift in the selling process from the local level to a higher, or even corporate, level.

"This also has a significant impact on a sales compensation plan," says Roye. "Many companies view those that sell and close deals very differently from those that service deals others have sold. To this end, the compensation plan structure and payout levels will be measurably different, depending on the situation."

The good news is that these and other marketplace issues can be tackled by using a compensation plan that has the buy-in and support of a company's stakeholders, recognizes the uniqueness of the business, supports the company's goals and objectives and is documented and effectively communicated to the sales organization.