The company was posting good results, the sales team was earning high commissions, and the owner felt the pay scheme no longer reflected what was actually happening in the business. We set out to design new bonus rules. It quickly became clear that the first step was to agree on what the company expected from sales.

A good result and the owner’s doubts

At the end of the year, Krzysztof added up the commissions paid to the sales team. They were high, but the amount itself was not the problem. The company had agreed to those rules, and the team had been paid in line with them. His doubts were about which activities had actually driven the base on which the commissions were calculated.

The mechanism in place was simple: salespeople received a set percentage of the gross margin, calculated as the difference between the sales value and the purchase cost of the goods sold. For years this had worked well for the company. Once the way the business was run changed, however, its limitation came to light: commissions also grew thanks to purchasing savings, regardless of whether the salespeople had any part in achieving them.

What changed after succession

Krzysztof’s father had stepped back from running the company and handed management over to his son. He was a born salesman. Over the years he had personally built the customer relationships that contributed significantly to the growth of the business. He was supported by an experienced sales director, who stayed with the organisation after the succession.

Krzysztof worked differently. He paid more attention to suppliers and purchasing terms. He found new sources of supply and negotiated lower prices. As a result, despite falling turnover, the company achieved a good result.

The summary Krzysztof prepared showed the scale of this shift: the amount resulting from lower purchase prices accounted for around 70% of the total gross margin the company had generated. Yet the sales team’s commissions were calculated on the entire margin — including the part earned through lower purchase costs. It was this dependency that left him feeling the system was unfair.

The salespeople, however, had been acting within the rules in force. What was needed was a change of rules for the future, one that reflected the new division of responsibilities and the company’s current goals.

The question of sales objectives

Our first meeting took place online. I wanted to understand not only the numbers but also Krzysztof himself: his expectations, his management style and his relationship with the team. Without that understanding, I believe it is hard to propose a solution the owner will be able to apply consistently. We agreed on the scope of work, how we would communicate and the deadline for completing the project.

After receiving the documents and carrying out an initial analysis, I came back with a question that turned out to be crucial: what exactly should the sales department achieve over the coming year?

Is the priority revenue growth, a better margin, winning new customers, or expansion into foreign markets? Which goals come first, and how will we know they have been achieved?

The company had no defined sales strategy, budget or sales plan. The conversation about commissions therefore revealed the need to agree on priorities. Before deciding what salespeople should be rewarded for, we need to know what results their work is meant to deliver.

From priorities to a sales plan

We went back to analysing the market and the results of previous periods. These became the basis for an ambitious but realistic sales plan for the next 12 months.

We organised the customers in Poland and divided them into segments. We identified strategic customers with whom the relationship had to be maintained, as well as prospective customers the company wanted to win. This turned the conversation about sales growth into concrete lines of action.

We devoted a separate meeting to exports. In the past, foreign sales had been important to the company. We chose markets where the organisation already had experience and drew up a list of companies with which to start building relationships. The next step was a sales plan broken down by salesperson.

Krzysztof also committed to working with the team to define the value offered to customers in each segment and how the company would compete. This was a task for further work. The customer list and the sales plan brought order to the team’s activities, but they still needed an answer to the question of why a customer should choose this particular company.

New bonus rules

On this basis, we prepared changes to the bonus scheme. One of them was a price list with reference prices used for calculating commissions. The basis for settlement became the amount by which the selling price exceeded the reference price.

This surplus is not the same as the company’s margin calculated against the actual purchase cost. It is a separate basis for the salesperson’s pay. The intention was to tie commissions more closely to the sales terms achieved and to limit the automatic effect of purchasing savings on their size.

A mechanism like this requires clear rules for setting and updating reference prices. Salespeople should understand how they are paid, and the company must keep track of the actual profitability of each transaction. Changing the commission base alone does not replace that control.

We also introduced a bonus for the first sale to a new customer, as well as a bonus linked to the retention rate of existing customers. In this way, the scheme took into account both growing the customer base and continuing existing relationships.

With arrangements like these, it is essential to define precisely what counts as a new customer and a retained customer, and over what period they are measured. It is also important to check whether the first transaction leads to further, profitable cooperation. These are criteria worth considering when assessing how the scheme works.

What to review after the first quarter

We agreed to meet again once the new rules had been in place for a full quarter. We agreed to stay open to reviewing them and making adjustments if needed. At that stage it was too early to judge the impact of the changes on the company’s results.

During such a review, it is worth comparing delivery against the sales plan with new customer acquisition, retention of existing customers and the profitability of transactions. It is also necessary to check whether the team understands the rules and whether the activities being rewarded really match the owner’s priorities.

This story shows how much depends on the order in which decisions are made. The owner came with a need to change commissions. Working together, we set priorities, chose customers and markets, and prepared a sales plan. This gave the new pay rules a concrete point of reference.

If you are considering changing the bonus scheme in your company, start with one question: does your team know exactly which results and activities matter most to the business today? The answer will help you decide what belongs in your pay rules.

Let’s talk about sales in your company

At Zabłocki Consulting, I support company owners and CEOs in bringing structure to sales management, setting the direction for growth and navigating change after succession. If the situation described here resembles the challenges in your company, I would be glad to talk about its goals and how your team works.

Grzegorz Zabłocki
grzegorz@zablocki-consulting.pl | +48 888 976 222

This article describes a real engagement. The owner’s name has been changed.