Business Development


Business Development Practices — Part IV: Models That Work

Successful business development for any firm requires dedication. This final article in the series on business development practices will focus on dedicated sales models that work. The definition of “dedicate” is to commit to a course of action, so when referring to dedicated sales models and staff, I am suggesting targeted, exclusive responsibility for sales-related activity, including the development of existing, as well as finding new, referral sources.

In response to changes within the retirement plan industry, TPAs have recognized the need for proactive business development practices to systematically grow their businesses through consistent, focused activity to connect with retirement plan specialist advisors. The desire to do so, however, does not necessarily make it happen, nor is the process easy. Incorporating a sales professional on staff is different than any other position in the typical TPA firm. The concerns voiced are typically:

  • How do I find the right person?
  • Why would I hire someone else to work my existing relationships?
  • How do I track their activity and success?
  • How do I pay them?
  • Should I just do it myself?

All these are very good questions, and will be addressed in this article.

It can be hard to find the right salesperson. I would suggest you incorporate a personality test as part of your hiring process to identify whether someone has the required skill set. Each applicant should complete the test in advance of the interview, so that you can eliminate him or her as a possibility before spending time in the interview process if the minimum personality requirements are not met. Good candidates are typically comfortable with (and thrive on) goals, competition, and compensation that is based upon their success. They are also not overly disturbed by rejection. Use a program that already has developed personality profiles to assist in identification of a good potential candidate. One word of caution, however; the typical pension administrator does not make a good sales person, as the skill sets are very different.

“Why should I hire someone else to work with my existing relationships?” My question in return would be, “Do you have other responsibilities within your firm?” If the answer is “yes,” someone else who is responsible just for that function certainly has better opportunity to further develop those existing relationships. If your salesperson could increase the number of plans by just one per each of your existing relationships, that in itself, would likely qualify him or her as a successful hire. Just think how great it would be if that increased number became two.

How will you know that the salesperson is doing what you want done? It is very important to have good tracking systems in place in advance of a hire. You want to provide the tools necessary for the salesstaff to manage their own activities, as well as for your review. Consider systems that track proposals and activity and that include a referral source database. You will need to establish weekly, monthly, quarterly, and annual goals, as well as a regular schedule for review.

Compensation is the most difficult hurdle for most business owners, as sales positions are paid differently than other positions within a TPA firm. Generally, a sales compensation package is made up of a base salary, along with a tiered commission structure, which is both fair and provides incentive. While some firms have commission-only packages, that level of uncertainty can cause the salesperson significant concern over the ability to pay bills (particularly in the beginning of your relationship when there is no inventory of cases already “paying off” for the salesperson). This can distract the salesperson’s performance, and make it harder to find someone committed to your firm and the job for the long haul.

Establish a reasonable base salary—I have seen these run from $35,000 to $65,000—and a tiered commission structure that will drive activity. Start with the sales goal. For example, suppose your goal was $200,000 (and this equates to about 60 new plans), and you set a base compensation of $50,000. With three breakpoints, at $100,000, $150,000, and $200,000, and increasing commission percentages of 10 percent, 20 percent, and 35 percent at each breakpoint, and 55 percent for sales over $200,000, the compensation package is attractive and will drive behavior. The commission payment is treated like a bonus when the breakpoint is achieved. See the table below, which illustrates compensation received for $250,000 of new business revenue. In the example above, the salesperson earns $110,000 for bringing $250,000 of new, recurring revenue to your firm. Keep in mind that he or she begins the new year from scratch, yet your firm continues to bring in $250,000 of revenue each year thereafter. There is a cost to business development. An appropriate compensation package will help to grow your business more systematically and will generate increasing additional revenue year after year into the future.

Remember that a good salesperson loves the challenge of meeting the goal. Therefore, each step in the tiered system should be greater to create more incentive to earn the larger bonus and higher overall compensation. keep in mind that it will take some time for a new hire to gain traction, so do not expect him or her to meet or exceed the goal in the first year; it may actually take a couple of years to do so, as there is a ramp-up time period and a learning curve involved. To accommodate this, you may consider a new hire compensation package with a higher base compensation during the initial year, which reduces in subsequent years as performance increases. And to address your last question, “Should I just do it myself?” Many business owners have either evolved into the sales position due to necessity or because they prefer the role at this point in their career. The real challenge, however, is to remove oneself from the business’ day-to-day responsibilities to focus exclusively on business development. This is commonly impossible, as you own the business and must give its operations your attention. As a result, the sales and business development take a back seat or passenger seat to the constraints of ownership, and you are never able to give growth the attention it deserves.

Sales Revenue Breakpoints Percentage Commission “Bonus”* Total Compensation**
$0 to $100,000 0% $0 $50,000
$100,000 10% $ 5,000 $55,000
$150,000 20% $10,000 $65,000
$200,000 35% $17,500 $82,500
>$200,000 55% $27,500*** $110,000
Total   $60,000 $110,000

*Each bonus was based upon the $50,000 increment over the base salary or previous breakpoint
**Total Compensation includes the base salary and the bonuses, as earned
***Bonus payment for $50,000 of sales in excess of the $200,000 goal

Still, what are your alternatives?

There are three types of sales models in retirement plans that will work:

  • Rainmaker;
  • Soup to Nuts; and
  • Owner.

Rainmakers: Salesperson Opens the Deal, Knowledgeable Consultant Closes the Deal

Many TPAs have mentioned to me that they can find people with sales skills, but not people that can sell retirement plans. Retirement plan sales are somewhat unique, because, due to the complicated nature of plan design, a salesperson benefits from more in-depth knowledge. Someone with that knowledge may be hard to find. This is where the Rainmaker model can work. You hire a person with sales skills who is responsible for all the sales-related activity, phone calls, introductory meetings, etc. However, once the proposal request comes in, the salesperson hands it off to someone with benefits expertise. “Thank you very much for allowing us to present this proposal. At this point, I will be transferring this over to a Consultant within our firm who will work with you on plan design and prospect presentation.” This is where you or one of your consultants takes over. This model is very effective for the firm hat provides higher level plan design consulting.

Soup-to Nuts: Salesperson Handles the Entire Sales Process

The Soup-to-Nuts model is the position where the salesperson is responsible for the entire process, from initial prospecting to final presentations. This model works well when you have a person with enough retirement plan knowledge to present your firm’s plan design proposal and/or when your firm provides less complicated plan design administration.

The Owner Model: I Can Do It Myself

And, finally, there is the Owner model. This model is quite effective when the owner relinquishes his or her day-to-day management or administrative responsibilities at the firm and truly focuses on business development activity. Quite honestly, it would be hard for anyone else to represent your firm better than you. However, there are considerations when making the decision to pursue this path. First of all, you need to be able to let go of those responsibilities that will distract your focus, a hard thing for many business owners to do. And while it may be hard to find a good salesperson to market your retirement plans, finding a manager that can run your business in your daily absence may be even harder. Second, being your firm’s primary or only “face” ties the product to you, personally. This may be an important consideration if and when you are contemplating selling your firm. If you are synonymous with the firm, the firm’s value is less if you are removed from the picture.

Now, It’s Up to You

Taking the steps outlined in this four-article series on business development practices should help you to put into place a plan or roadmap that will help you to achieve your objective. Remember:

  • Establish policies, processes, and procedures so that your firm and the staff all perform in a consistent manner.
  • Identify those relationships within your database that are the most beneficial and focus on them; do not waste any more of your valuable time on those that do not qualify as your best.
  • Dedicated effort will drive consistent, systematic behavior, and success through better referral source relationships.

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