Buy-and-Bill Products: Common Sales Compensation Pitfalls
Buy-and-bill products exhibit a number of characteristics that have significant implications for the conditions under which a sales force is selling—characteristics that must be considered in the sales compensation design process in order to ensure that the sales compensation plan drives the proper behavior in the sales force.
What Makes Buy-and-Bill Products So Different?
So what are some of the characteristics that make sales incentive planning for buy-and-bill products so unique?
Cyclicality. Even if they are not seasonal or cyclical, buy-and-bill products are often bought in a cyclical pattern and sometimes even a seasonal pattern. Because of the need to monitor overall inventory, accounts often exhibit patterns in their purchasing behavior.
Competitive Data Availability. Because most buy-and-bill products are administered directly in a doctor’s office, there is often very little competitive data available. Lack of competitive data availability complicates the goal setting process.
Forward Buying. Because buy-and-bill products can be inventoried, accounts can forward buy them in advance. This becomes even more complicated when the sales force uses the ability of accounts to forward buy to load their accounts and game the compensation plan.
Volatility. The nature of buy-and-bill products to be inventoried coupled with the cyclical/seasonal nature of purchasing patterns increases both the potential for and repercussions of marketplace volatility when sales do not hit when expected.
Audience. Particularly in hospitals and larger practices, sales representatives oftentimes need to extend their contacts beyond prescribers to personnel such as purchasing managers as purchasing managers have influence in how and what the account buys.
Factors such as these demonstrate the complexity of the sales compensation design process for buy-and-bill products. Given the uniqueness of buy-and-bill products, we will next explore some of the common pitfalls to avoid when designing a sales compensation plan for a buy-and-bill product.
Pitfall 1: Setting Goals Based on Most Recent Sales
If using a goal-based plan, which is the most commonly used compensation structure for buy-and-bill products, don’t set the goals based on sales from the most recent time period. Since these products can be inventoried, some sales representatives will game the system by performing poorly one quarter in order to receive a lower goal the next plan period, and then load their accounts to greatly exceed their goal next plan period. This process is then repeated to maximize earnings.
This is made even more complicated when seasonality is a factor; if the good quarters are coincided with the high season (i.e., Q1 and Q3 in the figure above), then the sales force stops selling the exact times it is most important for them to sell. Such behavior is not consistent with company objectives and we want to make sure it is not encouraged by the sales compensation plan.
Pitfall 2: Compensating the Sales Force for Returned Products
Another pitfall to avoid is compensating the sales force for returned products. As explored with pitfall 1, the ability of buy-and-bill products to be inventoried enables sales representatives to load their accounts and greatly exceed their goal one quarter. If returns are not factored into sales compensation and some of the loaded product is returned at a later date, the company is still liable for a payout that was not truly earned. This is behavior that life sciences companies very likely do not want their sales compensation plan to encourage.
Pitfall 3: Setting the Sales Compensation Plan on Market Share Change
The next pitfall to avoid when designing a sales compensation plan for a buy-and-bill product is setting the plan on market share change, particularly if the product is seasonal or cyclical, which we’ve discussed is often the case for buy-and-bill products. Basing compensation on market share change might encourage a sales representative to load his/her accounts before sales are expected to hit, which inevitably would cause market share to go up. Then, when the company is expecting sales to hit, the representative, who already earned a large bonus, has little incentive to increase a market share that is already starting rather high and may decrease rather than increase.
Pitfall 4: Having the Payout Curve Start Slow, Then Accelerate
The final pitfall we will be exploring is having the payout curve start low and then accelerate, particularly if that acceleration occurs above 100% goal attainment. Such an acceleration incentivizes the sales representative to keep pushing in a single plan period in order to maximize earnings; if a sales representative would earn more on certain sales in a single plan period because he/she is already above goal, then he/she would sell in the current plan period instead of waiting until the next plan period.
Conclusion
Buy-and-bill products present a number of unique challenges that complicate the sales compensation design process, from the cyclicality of purchasing patterns to the ability of accounts to forward buy. The behaviors encouraged by the pitfalls we explored in this article—particularly how each enables a sales representative to game the system—demonstrate how carefully the sales compensation plan must be crafted in order to encourage the proper behavior in the sales force. The sales compensation plan for your buy-and-bill product has tremendous ability to influence the sales force’s selling activity—we can help you make sure it encourages the right behavior.
