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Net Sales v. Net-like Components

by Mike Ma

I've been fielding a lot of questions about net sales in the last few months as firms are starting to redesign some of their compensation plans in preparation for the new year.

It's my experience that net sales are a goal that everyone should strive for, but one cannot just throw it into a line item in an excel spreadsheet and make it happen. Typically, I see firms who want to do net sales and will

- determine the total commission pool at target
- attribute a portion to gross sales in a territory (say, 80%)
- attribute the balance to net sales in a territory (thus, 20%)

The problem with implementations like this is that it doesn't affect behavior in the field. Weekly loops and call plans won't look any different if this is what we put in front of them.

Instead, we have been working with clients in developing net-like components into comp plans. Targets that are

- Measurable - they have quantitative basis to determine if a wholesaler hit them or not (e.g. # of new producers at a new, strategic distribution partner, or growing assets in more profitable asset classes)

- Substantial - non-commision variable compensation comprises less than 10% of total compensation at most firms, and therefore no matter how sound they are, or measurable, they won't change behavior. We are challenging our clients to double that amount, but pick activities they would really be willing to pay for.

While net sales across your entire wholesaling force may be some time off for most firms, there is nothing stopping firms from putting net-like components into comp plans today in order to build smarter wholesaling for tomorrow.