Recipe for Better Sales Revenue: Better Sales Compensation Programs

| August 6, 2019

By Bill Brady
Futures & Opinions, Inc.
President/CEO

PHOENIX — Radio sales has never been an easy job.

The challenges of selling an “intangible” against 20-to-30 other radio stations—plus every other form of media—was always difficult.  Only the strongest survived and the business chewed up and spat out those who didn’t have the skill and the drive necessary to succeed.

But, while radio sales was never an easy job, it was once a good job.  At one point, an A-player could make six figures and some even had barter allowances and car trades, which helped their cash income go further.  Before consolidation, many top radio sales pros were livin’ large.

Fast forward to today and radio companies have hacked away at commission rates and eliminated the perks.  The result: you can no longer get rich in radio sales.

Corporate bean-counters looked at the P&Ls and found it irresistible to take the axe to sales compensation.  Every CFO. I’ve spoken with has made the same comment, “My God, the sales people make a lot of money.”

Static model analysis is dangerous.  It is tempting to think that by lowering the cost of sales by 1% you can get that 1% to fall straight to the bottom line.  But, it doesn’t.  In a $90-million major market cluster, 1% of revenue is equal to $900,000 in sales compensation.  If you have 30 account executives and the commission reduction is equally distributed, every rep just got a $30,000 annual pay cut.  What do you think that does for the morale and motivation of sales people?

Yes, you might have been successful in reducing your cost of sales.  But, I guarantee you that you simultaneously reduced your top line.  That set you up for sales staff attrition through resignations and the inevitable layoffs and belt-tightening to reach your cash flow goal.  That brings us to two other maxims: “you can’t cut your way to prosperity” and “you want to get to your bottom line through top-line growth, not expense management.”

Over the last generation, radio companies have gone through several rounds of sales compensation reductions.  Sales staffs were reduced in size and byzantine commission and compensation plans were implemented.  Radio revenues have essentially stagnated ever since.

A regional VP for one of the big radio companies complained to me in 2006, “It’s a different business today, sales people are not going to be able to count their commissions on the way to the car.”  Sadly, he had no idea of the consequence of what he said.

Sales people absolutely must be able to count their commissions on the way to the car.  It is the basic psychology of the sales person.  You want them to be motivated by money through incentivized compensation plans; they’ve got to be able to taste it!  If compensation plans are overly-complicated and insufficiently generous, they are effectively backing into a salary.  AEs are not in sales to be salaried employees.  AEs are in sales to make money – a lotta money.

This is especially necessary with the dirty job in radio sales: local direct sales.  Every AE aspires to have the big agency list, but agency transactional business is a place where radio is perpetually vulnerable.  Major agency business is a strictly numbers based cost-per-point business.  SQAD reports are routinely analyzed to determine what CPP your radio station is actually selling at, enabling them to grind you down.  It is also an arena where avaricious groups drop their rates to get a larger share of the buy, hurting themselves and the radio industry in general.

The antidote to the vulnerability of transactional business is new business and direct non-agency business.  Unfortunately, this is not usually a highly-valued part of a radio sales operation.  The big bucks generally go to the veteran Ferragamo-wearing, BMW-driving rep with the big agency list.  The local direct specialist is recognizable on sight.  He or she is the one wearing sensible shoes and driving the 2012 pre-owned Camry.

The local direct seller is the one radio companies should be nurturing – and building an army of them!  Strong local direct and new business development is the key to radio revenue growth in two ways: it’s a vitally important revenue stream and strong local direct and new business revenue allows radio stations to “walk” from bad agency deals.

There are two basic ways to grow revenue.  Sell more spots and at higher rates.  It’s a simple formula.  Every $10 increment in rate equals roughly $40,000 a month at an 85% sell out rate (15 units per hour, 6A-7P Mon-Sat).  It’s all about “contrived demand.”  In other words, you have to create the demand with a strong local direct and new business effort.  That requires the right soldiers.

It will only happen if radio companies demonstrate that they value the local direct seller.  Make sure they’re properly trained and coached.  Pay them well.  Move them up a pay-grade or two.  Change compensation systems.  Give them a base salary and aggressive commission rates and incentives.  Let them taste the money.  Celebrate the successes.

For decades, the industry has been whining about a shortage of good sales people, but keeps offering ineffective compensation programs to new reps.

No change means no change.  If you want to open the revenue pipeline, commit to real change in radio sales compensation.  It all starts with a strong local direct and new business effort.  You want more revenue.  Pay your sales people more.

Bill Brady is President/CEO of Futures & Options, Inc., a media investment and consulting firm based in Phoenix.  His background includes management positions with Clear Channel, Citadel, Comcast and the Miami Herald.  He can be reached at 480-687-7433.

 

 

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Category: Advice