Window AC Unit
Bear with me as we set up the facts of this story.
This story is true. It actually happened. The people and the company involved are very real, but shall not be named. If they must have a name, call them . . . oh, let’s call them Little Brother Bob’s Hardware.
L.B.B.’s Hardware has several stores in southern states. Each summer they stock, and sell, window air conditioners.
The company had tradionally offered an incentive program for superior sales performance when it came to air conditioners. Each month’s quota was set at 110% of the sales from the same month a year ago. If any store outsold its quota of air conditioners, there would be a bonus of $25 per each additional unit sold over quota. The bonus money would be pooled, and the store’s manager could distribute to employees according to their contribution.
The Advertising Started
They bought ads in local newspapers. They passed out flyers in the stores. They mailed those flyers to the regular customers of each store.
First month: the store in our little tale sold 16 units over quota, and earned a bonus pool of $400 for the manager to distribute to assistant managers and salespeople.
Second month: 20 units over quota. $500 bonus.
Enter the Contractor
In the first week of the third month a local builder came in to the store carrying one of the flyers.
He explained that he had just been awarded a contract to remodel a local hotel. He wanted to purchase 200 identical window air conditioners, and wanted to know how quickly he could arrange delivery of such a large number of units.
The manager called L.B.B.’s Hardware’s home office.
Home Office Reaction
The home office took over the sale and dealt directly with the customer.
Within 48 hours a new bonus program had been implemented. Effective immediately, the bonus potential was capped at $500 per month.
In three years since the new bonus program has been in effect, Little Brother Bob’s Hardware has never again exceeded quota. At least, not this store.
Most of us see a cause and effect relationship in this example.
Do you have a bonus program for your salespeople? Is the program working with, or working against your advertising? How do you know? A strong repellent can cancel a great bait when you’re fishing for customers.
Your Guide,
Chuck McKay
Your Fishing for Customers guide, Chuck McKay, gets people to buy more of what you sell.
Got questions about staff incentives that will reinforce your advertising? Drop Chuck a note to start a conversation at ChuckMcKay@FishingforCustomers.com. Or call him at 317-207-0028.
A funny, true, related story from a mining company from 6-7 decades ago.
The mining company in question wanted to increase production but wasn’t sure how to do it. Thinking the people in the mines would have the best ideas as to how to boost production, they gave them an incentive plan that was clean and simple: every car of ore produced over the current level earned a specific bonus.
The mine company bosses were right.
Production began to take off, resulting in more cars of ore, and with less labor per car. As an added benefit, the methods the miners developed to maximize their efforts also resulted in less dynamite used per car of ore. It was a winner all the way around.
Then the bosses started to not like the sizes of the bonus checks they were writing, as some of the miners were making more than some of the bosses! So they changed the incentive package – since it was only taking X sticks of dynamite to produce a car of ore, the new incentive package was that for each X units of dynamite used, miners would receive Y in bonus.
Guess what happened?
Those mines were blown to pieces.
Dynamite use went through the roof, ore production dropped like a stone, and the company had to keep writing big bonus checks.
They ended up going bankrupt not much later.
Seems obvious in hindsight, but lots of profit sharing plans look great at the time they’re developed, only to incent something other than what was intended, and the whole thing turns into a mess.