What are some of the primary concerns and caveats when creating a sales expense plan? So, the biggest issue that you've got is that, in many cases, generating sales requires costs, it requires expenses in order to achieve that. In minimum, it's your compensation that you're paying your salespeople. But in some cases, you have other factors that you have to consider. Do your salespeople have to travel to their customers, right. If so, how is that travel compensated back to the salespeople, are they expected to pay for that out of their own pocket or are you paying for that on top of what they ordinarily pay, alright. So, the idea here is that, you want to fund appropriate expenses to help you to achieve the sales goals that you're looking to achieve, right. At the same time, you don't necessarily want salespeople to somehow be profiting by that, all right. So, what does that mean? Well, some companies for example, will set aside a certain amount of money and just give that to the sales people and say, "This amount of money is used to cover your travel expenses, customer entertainment expenses" or whatever, right. Now, I'm not saying every salesperson would do this but there's a certain salesperson type of personality, right, that might look at that and say, ''So, if I don't spend that money, I keep it, right? Guess what, I'm not going to spend that money." Well, now you've achieved your goal, right? You gave them the money and they pocketed it, right? So, that's not allowing you to get what you're looking for from that, right. You want to fund expenses that are legitimate and reasonable expenses that are incurred as part of the selling process. But you don't want to overcompensate, such that salespeople are somehow making money on it. So, you mentioned in the course that, in the United States, the IRS has regulated that only 50 percent of entertainment expenses are deductible. Can you talk a little bit about why that is? Well, I think the creation of those tax laws and where they were limiting the amount of business expenses, I think was motivated by the fact that there were, unfortunately, there were some abuses that were occurring within the notion of customer entertainment, right. So, one understands that customer entertainment is in certain selling situations, very much part of that relationship building, right. It isn't all just sitting across the desk from someone trying to negotiate a sale, right. In some cases, you need to build trust, you need to build likeability with sales people and so forth and the way that that often is done is sort of through entertainment such as having a meal or going to a sporting event or whatever, right. So, the concept makes sense and all, but what was happening was, there were just some really outrageous abuses and that the feeling was that it was occurring because companies could deduct the cost of that entertainment off of their taxes, right. So, in a sense, companies view that as like free money, right. They didn't really care that they were incurring those expenses and all. So, then I think Congress, got involved in things and didn't really like that they were seeing that. So, they imposed the 50 percent rule and what it's, I think trying to do is, is to curb these excessive cases of compensation. I don't have hard data to support what I'm about to say. But my feeling is in today's world, with the pressures that are on companies and all, I don't really think you have an awful lot of cases of of sales expense abuses that are occurring, right. I think companies have understood that they want to do it but no more so than what's absolutely necessary, what's sort of the minimum of that. So, I think in some ways, it's an artifact of some past behaviors that have crept into what goes on now. So, but that's the thinking behind it. Okay. Can you give us some examples of surprises that might pop up when you're processing sales expenses and you have an improperly written plan? Biggest reason that you see surprises is when you don't have hard policies that govern the surprises, right. Did you get to govern the incur, how you incur expenses? Let me give you an example. Companies may have a philosophy that they will reimburse salespeople for incurring travel expenses, right. Now, in some situations, where the customer is located is so far away that it requires taking a plane ride to get to that customer and all, right. If you don't have a set policy, it's possible not saying all the time, it's possible that you would have a salesperson who not only books themselves on that airplane, but flies first-class, probably paid a lot more for their plane ticket, than if they had flown in coach. That may not be what the company was really looking for, right. Suddenly now, they've got a big surprise because incomes they expense, right, and the salesperson, to some truth, can basically say, "You didn't tell me I couldn't do it", all right. So, now suddenly, they've played "got you", all right? You're forced to compensate those people, all right, to reimburse them for the incursion of that expense, but at the same time you're spending money when you really shouldn't. Now, that said, coming up with policies though is so difficult, it's so tricky. So, for example, think about again when people have to travel to a customer's location and all, very often, you need to stay overnight. It's not practical to be able to head back home and in one day or maybe you've got many customers and you're going to spend a couple of nights at a hotel, right. So, then just like with my airplane example, with first-class verses coach, there's all different hotels and all, right. There can be some very high priced hotels, right. You can be in ones that are in the middle of the road and then bargain basement type places and all, right. So, a company may wish to develop a policy that says, "Well, we're only going to pay for, let's say, middle of the road hotels. We don't want you spending a whole lot of money and things." That makes all the sense in the world except you need to realize that the cost of hotels is a function of the size of the market. Hotels in New York City are a lot more money than hotels in Erie Pennsylvania. So, then what do you do? Right. So, do you have to have some type of guideline for every market and all suddenly your policies become incredibly burdensome, right, in trying to stay on top of all of that and in administering those policies. You're going to have to hire a person who's going to have to evaluate all the sales, expense vouchers, right and to ensure that they held to policies and all. Suddenly now, you begin to question is the cost to do that all worth the results of what I'm looking for and all? So, everybody agrees that it's good to have ground rules, it's good to have policies. Putting those policies into place can be very tricky. How often should you adjust your sales expense plan due to outside factor? Well, I think most companies actually take a look at things probably on a yearly basis. And one thing that I should mention to you is that one of the things that a lot of firms use is that the government has an expense system that it's actually for government employees, but it's a public document. And it shows how much the government is willing to pay for a hotel, as well as, meals in every city in the United States, right? You can look it up and suddenly it takes into account when you're in a really large Metropolitan area, the costs are going to be higher than if you're in a really small one and all. So, some companies rather than doing it themselves, just sort of, say, will you have to use the government rates for your particular travel that goes on? So, that could be a helpful way to manage that. How do you mind your customer base to manage sales expenses? I think that there's two fundamental ways that I think companies try to manage their sales expenses. And the one is a very rigorous review of every sales voucher that gets turned in, ensuring that number one, that the expense is legitimate. That is to say, is there a receipt that the companies that expense and all, right? Then secondly, is that expense within policies and all. So, they are not spending more money than you really should know. One way is to look at every single expense that comes in and scrutinize it for those kinds of things, and kicking them out when they don't adhere to policy and all. The other approach that companies do is that they will selectively pool expense reports every so often, right? And scrutinize things. So, they're not looking at everyone but they're looking at them enough to keep everybody on their toes. The way I would describe it would be, in most communities, there's some notorious little speed trap where you see police. They're not there 24/7, right? They're not always at it, right? But everybody knows that that's where it is and odds are that they're. So, they have a tendency to not speed in there because they don't want to get that ticket. Well, it's the same idea. I think what's expense control, selective enforcement of it has a pretty powerful deterrent effect. How can you cultivate fiscal discipline as a core company value? Well, I think it's a challenge. I think that it has to do, I think in part with the culture that you're trying to create within that firm. And an understanding that every employee and their actions that they do is connected to the bottom line of the company, right? And it ultimately, enhancing that bottom line is in everyone's self-interest and all. That said, we have to acknowledge that we all are human, right? And we first and foremost think about our own needs and wants before we think of that company needs and wants and all. But I think companies that have a really strong culture or real commitment towards what are shared expectations of employees has a really helpful thing. The part that I find it's very interesting is that in some situations, you can have a company and then have a sales force. And let's imagine there's a salesman there who's been there for a really long time and the person is really, really good. I mean, better than anyone else that's out there, right? Turns in remarkable sales numbers for the company. So, it's almost like the company is kind of, dependent upon that. And in some situations not saying everyone, but in some situations and all, sometimes the company tends to look the other way with that person when it comes to things like expense reports and all that. And they let that person get away with things that they wouldn't ordinarily do because their results are so great and all. That may be in the short run an okay thing, but in the long run, everybody learns about it and everybody knows there's two sets of rules that go on, right? That can be a really bad development inside a company. That can create really severe morale problems and all. And I would discourage companies from trying to do that type of thing. Should I make my expenses variable versus fixed? Why or why not? Well, I think when you talk about variable versus fixed, I think that they, it really depends upon the nature of the expenses that we're talking about. So, what do I mean by that, right? So, in certain types of expenses such as let's say if a salesperson is expected to travel to a customer and let's imagine furthermore that the customers that is inside a salesperson's territory can be reached easily by driving, right? You don't need to take a plane and all. Some companies will provide a company car, right? So, what that means is that they get a car on lease, they pay the lease of the car, they pay the expenses for the car, the gas and so forth, right? So, that lease is going to be the same amount of money every month, right? For as long as the term of that lease. And in that sense that expense behaves as a fixed expense. On the other hand, the gasoline might vary a bit depending upon the type of travel that they're doing and where they are and so forth, right? So, I think that fixed versus variable expenses is really a function of what the nature of the expense would be. Who typically manages the sales expenses in a business? I would say, so, the sales expenses falls under the sales manager's responsibility. Ultimately. Sales managers responsible for both expenses as well as sales and revenue that's coming in and all. It depends though like in some companies, you can have people in the accounting or in the financial area of the company that actually physically processes expenses, and arranges for payments, and that type of thing. If your sales organizations large enough, you're going to need to have somebody who has to be able to do that day to day type of work. You can't expect a sales manager to scrutinize every expense report, and ensure that every expense report is legitimate, and so forth. That's just not a good use of that person's time. So, you see it as a shared responsibility between sales manager, and people in the financial operations. Do you have an example of a time when you successfully negotiated a lower rates with a vendor? Is there a formula for doing that? Like for example, splitting the cost of an event with a vendor in exchange for advertising. So, when you talk about negotiating with vendors. I think that the key thing that has to think about, and keeping in mind is the notion of a win-win type of situation, right? That is to say, asking for a price concession or some other type of thing from a vendor. Why should a vendor agree to that if there's not something for the vendor in return? Whether that be a lot more business, or more consistent stream of business, something that would incentivize the vendor to consider that type of thing. I think it's very interesting, just this week as we are taping this. So, this become a little bit dated, but the company Tesla that makes these battery operated cars and all. So, evidently they must be having some financial issues, and financial pressures, and all that. The one news story that I read, is that Tesla has gone out to their suppliers, and basically asked them to give back some of the money that Tesla had paid them just because Tesla needs it, right? I've been thinking about that, and feeling like, "Boy if I was one of those suppliers, I would really feel pretty agitated over something like that, right?" There doesn't appear to be anything in it for the supplier, right? It's like Tesla is asking them because they need money, and they figured out that maybe suppliers have it, so we're just going to try to demand it from them and all. I don't think that's a long-term strategy, and I would think that for certain suppliers they may say, "That's the last time I'm going to do business with Tesla, right?" I mean a deal is a deal. You're not supposed to be able to go back at any point in time, and renegotiate that deal. So, as a sales operation manager, are there any types of sales tools or technology I can invest in to reduce my sales expenses? For example, going more database driven than the old-school, drive, and visit your customers. I think one of the probably the biggest tools, and this is not really that new. But it seems like it wasn't that long ago that sales expenses was what I would call a paper-based system, right? You had just tons and tons of paper, receipts, and invoices, and bills, and all these other stuff, right? It was just the processing of all of that Information, and all. I think most companies have adopted automation processes that are in place to wear. A lot of that is now electronic, right? Which is really nice because you're just not buried in a sea of paper, and trying to make sense out of things and all. I think that the thing that companies are looking at though is now that it's all automated. One of the things that you can do is in real time, be comparing your expenses that you're incurring today with expenses from the past, right? You can instantly see how things work, right? So, if a salesperson is expected to turn in an expense report once a month, right? Suddenly, in a given month expenses increased dramatically or decrease, right? In the past, you may not unless you had an incredible memory. You may not have been able to catch that, today you can. So, then it allows you to say, "Hey what's going on here? Why is this happened?" Allows you to be able to take some proactive action to anticipate that this phenomenon is happening. What type of data should I gather before I create an effective plan to manage my sales expenses? I think that the first point of data that one has to gather is what is your broader goals, and what you're looking to try to achieve, and all. Secondly, I think what is very helpful is historical data, right? How much you've been spending in the past? What is the nature of those expenses, and all? So, the first thing that a sales manager has to do is they have to decide, is my past experience indicative of what I am anticipating in the future or not, right? If it is, it becomes a very useful metric that allows you to construct a sales plan based upon your historical information. If it's not, well then, one has to make adjustments to those things. So, for example, a company is has a goal is expanding into new markets, these markets are much bigger than what they've had in the past. It's likely that the expenses that are incurred in those markets are going to be a lot higher than what has been done in the past. That's okay, right? I mean you need to have two things. One is what you've been spending in the past, and what are your goals to help you to determine what ought to be your plan in the future. Do you think that virtual meetings are an effective way to help control sales expenses? Does it depend on the type of business that you're in? I think the most important thing to control sales expenses is that the salesperson needs to know that it's monitored and aggressively managed, right? That anything that is unusual is going to get called out, and is going to get questioned. I think that does a lot to discourage potential abuses of expense reports, and that type of thing.
