RATING THE COMMISSION CONCEPT
Your From the Editor column in June RER involving the relationship between sales commission payments and rates presents an idea that most rental management executives would agree with. The concept could be one component of an industry recovery plan. At the same time, you may have had a few sales representatives cringing as they read the same words.
The concept has been discussed by many within the industry over the years. Efforts to establish an effective compensation plan, paying higher commissions for obtaining higher rates, have been thwarted by a number of obstacles. Administration and programming becomes an issue that is more complex than first thought. Then, the establishment of appropriate “rack rates” becomes a daunting task, especially in consideration of addressing many markets with changing pricing conditions. Ultimately, in order to pay significant commissions for strong rates, most companies have realized that they would need to de-emphasize payments on discounts, which leads to the fear of a loss of talent.
Most plans, paying on total volume, encourage quick rate cutting. Not only has the industry sales effort educated customers on how to negotiate for lowest rates, one gets the feeling that rental sales representatives may spend more time selling their management on low rates needed, as opposed to placing the time and effort into selling higher rates to customers. The cures to this, and recovering industry pricing, lie in management teams holding to specific flooring, setting discount approval systems, and not being fearful of pursuing compensation ideas such as the concept that you recommend.
But, let's not equate the industry pricing problems exclusively to the efforts of the industry sales representatives. After all, they were not the ones responsible for purchasing the massive amounts of fleet during the consolidation years, which led to a supply/demand issue. And, once this happened, many management teams directed their sales efforts with time utilization as the main goal, as opposed to maintaining or increasing pricing. Even those owners and managers who were most conscientious of pricing were forced to review their flexibilities or risk the loss of market share.
The commission/rate concept can be achieved in smaller, localized companies, and if done with appropriate planning, these firms can maintain their personnel loyalty. Of course, it is the larger rental companies that set the overall pricing standards of the industry, and need to look at compensation changes for the future. The ideas, such as yours, are there. They can be accomplished, as long as appropriate personnel sensitivities are considered involving the institution of a new plan.
Ultimately, the health of the industry will rely on rate recovery. Reverse your engines. Managers must manage and work with sales representatives. Corporate direction must encourage and find the ways to build rates and be willing to look at innovative commission programs. Those same sales representatives who are smart enough to build their earnings by discounting and moving quickly to the next deal are also smart enough to understand that their very own security involves the recovery of rates and management's attempts to cure the problem.
Fort Lauderdale, Fla.