QPM -The Framework for Profitable Operations

Posted by tED magazine on Monday, October 31, 2011

By Stacey Pandeloglou

Quantum Profit Management (QPM) is the new framework and set of principles used to effectively manage at the net profit level. Guided by QPM, you can keep your team focused on the real profit drivers in your business, and act fast to maximize the bottom line.

QPM Principles

• You're making more money than you know
• Manage on net profit — GP is a poor indicator
• Financial averages mask what's really going on
• Measure & evaluate at the quantum level.
• Understand and manage service models
• Manage the deltas — they take you to your goals
• Price strategically for optimum profits.
• Synchronize goals & incentives

For more on Quantum Profit Management, go to www.quantumprofitmanagement.com

For strategies and tactics used to execute on QPM, go to www.merrifield.com

One of the key areas that should be addressed is the third rail of distribution – sales compensation plans. After decades of trial and error, distributors are finally able to get a handle on effective sales compensation. The key metric for managing sales compensation, as well as company profits, is NBC.

NBC (Net before Compensation) equals the Company’s Operating Profit plus the Outside Sales Representative Compensation.  Historically, US Distributors have paid 50% to 60% of NBC in sales compensation.  In fact, many distributors may much more than that.  Here is formula that you can use to see where your company stands with your current compensation.

            Outside Rep Sales Pay

   ----------------------------------------                        X     100      =    % of NBC paid as Compensation

   Operating Profit + Outside Rep Sales Pay

Profit-measurement tools, such as Waypoint Analytics software, can now calculate NBC at sales representative/ territory level so that companies can structure commission plans that are tied directly to operational profits. Distributors that are moving to this system have seen profits double (and greater) without any new sales revenue. This has proven to finally gets your company’s sales force fully engaged in the fight  for profits.

Newly released Software can also provide detailed commission reports. For the first time, companies can pay sales commissions based on real net profitability. This powerful tool rewards reps both for creating and maintaining profitable sales, and for improving profitability on formerly losing business.

This is one of the most powerful and effective incentive structures available today, and can be one of the most important drivers of a company's success.

 

Stacey Pandeloglou is the founder and president of Distribution Technology Group (dtgworldwide.com), which is committed to offering personalized solutions that maintain the distributor’s natural process flows and protect their existing technology investment. Pandeloglou has been providing technology solutions to distributors for more than three decades with companies such as Trade Service Systems (now Epicor), Descartes, RouteView, ESC, and other distribution-centric technology providers. Email him at stacey@dtgworldwide.com or call him at 757-491-4978.