Manufacturing Case Study

Sales Comp Plan Drives Focus on Strategic Products

Company Challenge

The company designs and manufactures advanced dishwashing, cooking, refrigeration and food processing equipment. In addition, the company provides equipment service for institutional, industrial, restaurant and retail customers. 

Project Approach

The company engaged Alexander Group to assess, design and implement sales compensation plans. The company deploys a “land and expand” strategy. It wanted to compensate sellers by the level of influence on the initial sale. Additionally, the company needed sellers to remain engaged with new customers for 12 months after landing an account. Management wanted to include both objectives in the revised plans.

Key Findings

Job Profile

The foodservice equipment and supplies industry is growing at a compound annual growth rate of 8%. Quick-service restaurant (QSR) and fast casual restaurant segments are growing at 5% and 11% respectively. The company’s two business segments include foodservice and retail. The foodservice segments are national accounts and rest-of-market accounts featuring two types of sellers: national account managers covering named accounts and territory sales managers selling to distributors. The retail segment predominantly uses direct coverage and includes two types of sellers: key national account managers and national account managers. Job profiles for these two sellers are very similar. The rest-of-market retail channel uses a series of five indirect distribution partners. 

Products, Customers, Coverage and List of Jobs

Products and key equipment groups include cooking and baking, refrigeration, food preparation, clean up, holding, weighing and wrapping equipment, ventilation and service.

Each business segment includes the following channels: key/national accounts and rest of market. The foodservice segment consists of restaurants (primarily QSR and fast casual) and cafeterias (primarily hospital and education-based). The retail segment consists of grocers, wholesale clubs and retail brands that prepare/process their own food.

Job Types

Key National Account Manager (KNAM) — Retail

Maintains and expands share position of the company’s portfolio of products in existing key national accounts in retail segment–top grocers and warehouses; continually develops growth opportunities within assigned accounts.

  • Growth revenue (100%) 

National Account Manager (NAM) — Retail

Maintains and expands sales of the company’s portfolio of products in existing national accounts in retail segment–mid- to large-tier grocers; continually develops growth opportunities within assigned accounts.

  • Growth revenue (100%) 

National Account Manager (NAM) — Foodservice

Maintains and expands sales of the company’s portfolio of products in existing national accounts in foodservice segment—quick service and chain restaurants; continually develops growth opportunities within assigned accounts.

  • Growth revenue (100%) 

Territory Sales Manager (TSM)

Maintains and expands sales of the company’s portfolio of products existing in foodservice field segment–dealers, key end-users and regional chains; continually develops growth opportunities within assigned territories.

  • Equipment sales (70%)
  • Service product objective (30%)
  • Focused growth linkage
  • Overall growth linkage

Project Recommendations & Outcomes

Alexander Group assisted the company to simplify its sales compensation plan designs and focus on corporate initiatives to expand its customer base. The end-goal was to create simple plans to drive year-over-year growth.

Alexander Group made the following key contributions to the company’s sales compensation plan:

Simplified plans for KNAM/NAM roles.

The existing plans for KNAM/NAM roles had two measures: net sales performance and management by objectives (MBO). The company pays net sales performance on account revenue growth over prior year. The leadership team’s concern was on increasing bottom-line growth. The MBOs were not consistent amongst roles, nor were they consistently scored/evaluated. This resulted in paying KNAMs/ NAMs on activities that did not have a significant correlation to revenue growth. Alexander Group educated the team on the risks of using ill-defined, hard-to-measure key sales objectives (KSO). The design team reached a consensus to remove the inconsistent use of KSOs in plans and focus on 100% growth revenue in KNAM/NAM plans. 

Significantly increased pay for above-goal achievement in KNAM/NAM roles.

The existing plans for KNAM/NAM roles featured a cap. The target incentive payout capped at 135% once a seller reached 130% of his/her annual goal. Historical pay and performance data showed that only 5% of sellers achieved beyond 130% annual performance. Sales leaders were concerned that sellers were not properly motivated to achieve beyond their sales goals under this structure. Alexander Group gathered consensus around these concerns during the assessment readout.

The design team tested the cost impact of increasing leverage to 2.5x after learning guiding principles for leverage and upside. Alexander Group’s cost-impact analysis found that the new designs maintained an acceptable compensation cost of sales (CCOS). The design sessions resulted in a significant increase in pay for above-goal achievement in KNAM/NAM plans.

Designed a solution for balanced performance in TSM roles.

The existing plans for TSMs featured different commission rates for different product lines. The design goal was to motivate sellers to focus on strategic, high-margin products. However, since rates did not differentiate significantly and featured seven tiers of commission rates, sellers would “shop the plan.” Historical sales data showed higher rates did not actually drive strategic product sales. Alexander Group recommended reducing the rate tiers to four to drive simplicity. Alexander Group also recommended a more pronounced difference in rates between strategic and non-strategic product sets. Finally, Alexander Group recommended using a hurdle for the highest tier rates. TSMs would now have to achieve more than 90% of their product-specific sales goals to earn the higher tier rates. Alexander Group’s recommended changes resulted in simple-to-understand plans that focused on delivering balanced performance. 

Performance Metrics

Growth Revenue

Goal-based bonus that pays on achieving a percentage increase from previous year total revenue. The measure is simple, easy-to-understand, but focuses on the sales outcome desired by the company. 

Equipment Sales

Stepped commission rate based on the level of discount a seller concedes. There are two separate rates for two distinct product lines: dealer choice and spec line. Spec line commission rates are richer because the products represented have stronger margins. 

Service Product Objective

Flat commission rate paid on all service sales. Like many other manufacturers, the company has strong margins in its service offerings. The new service product objective entices more sellers to sell additional service on top of their equipment sales. 

Focused Products Linkage

A capped, goal-based modifier (linkage) that links the sale of specific, top-tier products to the equipment sales measure. Sellers receive further compensation to sell focused products defined by product leadership. These focus products carry significantly stronger margins and typically fall under the spec-line product line. 

Overall Growth Linkage

A goal-based modifier (linkage) that links the overall growth of total revenue to the equipment sales measure. Each TSM is goaled against prior-year total revenue for this linkage. The linkage encourages similar year-over- year growth that the KNAMs/NAMs pursue. 

Alexander Group has helped thousands of clients.

Our expert leaders assess, align, design and implement powerful sale compensation programs. Alexander Group has helped organizations realize the full benefits of effective sales compensation programs to attract, retain and reward best-in-class sales talent to profitably grow the business. 

We can help with all elements of your sales compensation program.

About Alexander Group

Alexander Group understands your revenue growth challenges. Since 1985, we’ve served more than 3,000 companies across the globe. This experience gives us not only a highly sophisticated set of best practices to grow revenue—we also have a rich repository of unique industry data that informs all our recommendations. Aligning product, marketing, operations and finance efforts behind a successful sales organization takes insight and hard work. We help the world’s leading organizations build the right revenue vision, transform their organizations and deliver results.

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