It is easy to build a domestic trading company market. There, everyone buys and sells something.

And what if the majority of your employees are not directly connected with the sale of the company's products or services? Of course, you pay them. But what do they sell you for your money?
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Many managers will say that they are buying the time of their employees. There remains only one difficulty - to turn the purchased working time into something that will bring income to the company. Issues such as who, what and when should do, are usually decided at the discretion of entrepreneurs or their proxies - managers.

Is it possible to make the employees profitable to sell you exactly what the company earns income?

Despite the profound differences between how different employees create value for a company, most firms use the same payment mechanism for all of these methods. Our task is to propose alternative mechanisms adapted to each of the ways to create value.

In a previous publication, we talked about the basic principles on which Mr. W's systems are built. This time we will focus on examples taken from the model for the current Internet provider, which we will call S-Telecom for short. This company provides Internet access (ADSL, Ethernet-to-Home (optics), etc.) to two categories of subscribers: corporate clients and households. For the sake of simplicity, we will assume that S-Telecom offers only 3 tariff plans in various price segments:



To begin with - very briefly, in order not to bore readers - let us describe the S-Telecom divisions that will be discussed:








So, we are dealing with 6 groups of employees, completely dissimilar in their functions. Our task is to pay employees only for the work that creates value and brings income to the company.

At the same time, we must not forget that some departments are authorized to make decisions on the use of significant resources of the company (marketers determine advertising budgets, administrators determine the need for the procurement of all types of hardware, etc.). Therefore, we must also ensure the rational management of the company's resources.

First of all, let's highlight 5 main ways in which various groups of company employees create value:

• Productive - Productive
• Investment - Investment
• Preventive - Proactive
• Efficient - Rational
• Careful - Caring

(despite the frivolous translation and not the most successful order of the terms, we will not deny myself the pleasure to build the abbreviation PIPEC ).

Productive

The easiest way to create value is productive. The more your employee works (not in terms of time, but in terms of work results), the more income he brings to the company.

A typical example of productive value creation is the work of sales staff. Each new subscriber brings additional revenue to the company, which is easy to measure, having information about tariffs and variable costs.



Of course, the company's revenue is influenced not only (and not so much) by the profitability of servicing one subscriber, but also by the number of subscribers. Most of the gross profit of the company can be formed by the least profitable (per unit) products or services.



Just as S-Telecom sells Internet services to its subscribers, salespeople sell subscribers to the company itself. Therefore, it is not surprising that the most common way to reward salespeople around the world is to “buy” each new subscriber at a certain price.

The most subtle question in this matter is the correct setting of these same prices. The price of a new subscriber should be determined depending on the following factors:

• The value of the new subscriber for the company
• Value created on the selected sales channel

The value of a new subscriber is determined primarily by the income it brings to the company. Obviously, for S-Telecom, each VIP subscriber brings more revenue than a subscriber on a different tariff plan. Therefore, the salesman's reward for attracting a VIP subscriber should be higher.

Much more interesting is the question of what value the selected sales channel creates for the company. Consider, for example, two types of sellers that S-Telecom has: front-office employees and direct sales employees.

S-Telecom front office employees are the first to meet potential subscribers who come to the company's sales office. In no case can one assume that their work in accepting customers for service is purely technical. It depends on them whether the transaction between the company and the subscriber will be made, as well as the terms of this transaction (for example, the choice of a tariff plan).

But can we assume that all the profits that the company will receive from servicing a new subscriber are created by the front office employees who have signed the service contract? As Tanya D. , who worked in the advertising department of one of the largest Moscow newspapers, once said, “... 8 girls from our department all this horde of journalists are fed ...” .

In fact, sales through the front office occur mainly due to the fact that potential subscribers come to the company's sales office. The reasons for this can be very different: an excellent product, effective marketing, a good office location, or, at worst, a monopoly in the market.

This means that the sale is the result of the collective efforts of the employees of the front office and other departments of the company. Accordingly, only a portion of the company's revenue can be linked to the activities of the front office.

From the point of view of domestic market arithmetic, the front-office employee gets into his own hands a potential subscriber who has already been “paid” by other departments of the company, and the value of his work is to turn the potential subscriber into a real one.



Employees involved in direct sales, create for the company a higher cost than sellers from the front office. The difference between them is that “direct salespeople” independently find potential subscribers, while subscribers come to “office salespeople” as a result of the work of other departments of the company.



“Direct sales people” spend their time and other resources on finding potential subscribers, while creating additional cost. In addition, potential subscribers who visited the company's office come with the clear intention to make a deal, while “direct salesmen” have to deal with less loyal customers.

To make sure that the “direct sales” really create a higher cost, it is enough to assume that no one knows anything about your company. In this case, it is extremely unlikely that you will be able to sell something through the front office, while direct sales may still bring you customers.

The added value created through direct sales depends on the business and can be extremely high. For example, in network marketing, it may exceed half the value of the product. Those who are interested in building a sales system are addressed to professionals in this field (for example, AndreiMai ).



In general, for S-Telecom, the following rules can be defined for determining the remuneration of salespeople:

• The calculation of remuneration is made at a time and separately for each new subscriber;
• Remuneration is charged to the employee who made the transaction;
• The amount of remuneration is defined as the share (percentage) of the value added created in the sales process. The value added depends on the contract amount (tariff plan) and sales channel (office / direct sales).

Investment

Now let's look at another service of S-Telecom, whose activities (among other things) are aimed at increasing the company's sales - the marketing service. Marketers, as well as sellers, are trying to achieve increased sales, but in completely different ways.

To begin, consider only the aspect of marketing activity, which is aimed at attracting new subscribers. In this aspect, an important difference between marketers and sellers is that in the process of work they spend not only their working time, but also the company's significant resources.

Marketers are investors. They invest funds of the company - in advertising, marketing campaigns, the development of new tariff plans, etc. - to increase the company's revenue.

Based on this, the marketer should:

• receive revenue from attracting new subscribers, as well as
• pay for the use of invested resources.

In this scenario, the marketer will receive remuneration from the company only if the ratio of costs and benefits of marketing activities is in favor of benefits.

Most often, marketing budgets are formed on the basis of estimated costs. And, as always, the greatest difficulty lies in determining the real benefits of the company's marketing activities.

However, the Coase theorem (see previous publication ) provides a very simple recipe for determining the benefits of marketing activities to attract new customers.

First of all, let's return to the question of the value added created by sellers from the S-Telecom front office. As we have already noted, a significant part of the sales work is done for them by other divisions of the company, thanks to which potential subscribers come to the S-Telecom sales office. In essence, the activity of marketers in this context is aimed precisely at attracting potential subscribers to the company's sales office.

Thus, the marketer works in tandem with salespeople, “inviting” customers to the company's sales office, where salesmen from the front office continue to work with them. The result of such a tandem , in principle, is equivalent to the result of direct sales: in both cases, the company gets new subscribers.

Coase's theorem tells us that two sales channels - (1) direct sales and (2) a tandem of marketers and a front office - create the same added value for the company.



In other words, the value added created in the marketing process is equal to the difference between the value added of direct sales and the value added of the front office.

Based on this, the company should thus adjust the remuneration of marketers and “direct salespeople” so that the company's costs of attracting a new subscriber across all sales channels are equal. Otherwise, the company will be more profitable to abandon one of the sales channels in favor of the other. For example, if the cost of attracting one new subscriber through advertising on television is more expensive than the company pays for the new subscriber to the “direct sales person”, instead of placing advertisements on TV, the company should increase the activity on direct sales.

In accordance with this, the remuneration of the marketer per one new subscriber should be equal to the corresponding remuneration of the “direct sales person” minus the remuneration of the front-office employees. At the same time, the remuneration of the marketer should be reduced in proportion to the cost of marketing (per subscriber).



Thus, whenever a marketer starts a marketing initiative, he must relate his own benefits to the risks associated with this initiative. His additional income from the increase in company profits will have to cover his losses associated with the depreciation of investment expenses.

It would seem that this is all? However, no. The above formula includes one parameter, on which the nature of marketing activity depends.

The formula assumes that the marketer must (partially) reimburse the firm for the cost of using the resources invested in the marketing action. This cost should be amortized over the period during which the significant effect of the promotion is expected.

Thus, with the same costs for a marketing campaign, its estimated profitability (or unprofitability) will depend on the period during which these costs will be amortized. Therefore, the conduct of any marketing campaign involves the achievement of a consensus between those who allocate resources, and marketers, regarding the period of effectiveness of the marketing campaign. Do not forget that Steve Jobs was fired from Apple in 1985 precisely because such a consensus was not reached (see also Landscape Management Principles in a previous publication ).

Preventive

From sellers and marketers, we are always waiting for action. In contrast, the best admin is the one to which you practically don’t have to turn. Because the best admin is not the one who solves well the problems that arise, but the one who does not allow them to occur.

In a company like S-Telecom, you always know how much revenue each network segment brings. And it is also easy to calculate what losses the company suffered if a problem arises in this or that area.

If the network section is working normally, then the company receives income. Undoubtedly, in this great merit admin. If something is broken - the company loses money, and this (with the exception of force majeure) is an indicator of the poor performance of the administrator. At the same time, the company is interested in resolving the problem as soon as possible.

It should also be taken into account that admins, like marketers, can initiate investment costs. Expensive pieces of iron, of course, increase the resiliency of the network and expand its technical capabilities. And if the admin does not correlate his benefits with the benefits of the company, he will always require more and more expensive pieces of hardware. However, from the point of view of the company, these investments are far from always justified.

Thus, in order to establish a correlation between the revenues of the administrator and the revenues of the company, the following is necessary (for more information on the Principle of Interest Correlation , read here )

• pay admin part of the income of the company from that part of the network, which it serves. It is clear that the firm receives income precisely when the system works flawlessly;
• to fine the admin for the time when the system is not working (to ensure the earliest possible troubleshooting);
• subtract investment costs from the base, which serves as the basis for the accrual of income to Amin. This will avoid unwarranted investment in equipment, etc. Of course, investment costs must be deducted by depreciation scheme.

Efficient

There is no doubt that information and technical support is a necessary attribute of the service of the Internet provider, as well as a powerful channel of feedback from subscribers.

At the same time, service departments — such as SITP and TS in S-Telecom’s company — are significant sources of costs that must be kept within established limits. The required level of service should be achieved not so much by expanding these services, but by increasing their efficiency.

The budget of a service such as SITP is determined according to the rules of the insurance business. The cost of restoring a car that has got into an accident can be many times higher than the amount of the insurance premium paid by a motorist. Similarly, the cost of satisfying a single application of a subscriber may in some cases exceed the cost of its monthly subscription fee. Therefore, the budgets of such services as SITP and TS , should be determined on the basis of reliable statistics on customer service.

Let us consider the work of the SITP . The interests of S-Telecom determine the following requirements for the activities of this service:

• The SITP budget should not exceed a certain share of the total revenue from the sale of services. This share, as mentioned above, is determined on the basis of statistics on customer service.
• Each subscriber request must be accepted.
• Subscriber problems should, if possible, be resolved at the ICTS level, without redirection to other services. The argument here is that the cost of solving a subscriber’s problem with the involvement of other services costs the company more.

The solution proposed by Mr. U takes into account all the specified requirements.



Note that in the proposed model, the SITP budget grows in proportion to the sales of the company's services, but at the same time it is kept within the limits determined by the level of “risk insurance” established for the company for customer service.

It is curious that payment factors for the quantity and quality of consultations compete with each other, so that you can achieve the required balance between quantity and quality by adjusting the parameters of the model.

The distribution of the SITP budget among employees is based on KPI (Key Performance Indicators), which include the following parameters:

• number of requests received
• the number of consultations, taking into account the assessment made by the subscriber (at the end of the consultation, the subscriber gives an assessment by dialing the required code in the phone)
• consultation time, taking into account the evaluation set by the subscriber
• the degree of complexity of the diagnostics (in accordance with the algorithm used in the ISTC diagnostics).

Note that none of these KPIs is the result of an internal assessment conducted by other employees or managers of the company. As is known, the system of internal ratings has a number of important shortcomings , which led to the rejection of the use of internal ranking ratings in companies such as Microsoft and Adobe Systems (meanwhile, some continue to use it, including Yahoo).

As prof. A.G. Shmelev (chief editor of the site www.ht.ru , scientific director of the group of companies "Humanitarian Technologies" , doctor of psychological sciences),

"... any competitive system" with retirement "(competition according to the model of" rivalry ") works better if labor tasks are distributed among individual performers so that they minimally depend on the current work from each other."

The model for the Technical Service ( TS ) is being constructed in exactly the same way, with one exception. The fact is that the TS uses for the work of official vehicles, which the company pays. In Mr. W’s model, the use of company vehicles leads to a deduction from the budget of the Technical Service. The cost of using official vehicles is established from those considerations so that, for example, a trip to the subscriber would be beneficial for the vehicle with a single use of official vehicles, but become unprofitable with double (or more) use.

Careful

Even if your company has tens of thousands of customers, there may be quite a few among them that deserve special attention.

For example, S-Telecom has several hundreds of VIP customers who pay tens and hundreds of times more regular subscribers. The servicing of each VIP client is monitored by the curator from the subscriber department.

The supervision mechanism is an example of the implementation of the Principle of Private Property , which we wrote about in more detail in a previous publication . If 1% of your customers bring 10% of the company's revenue, then the additional efforts to retain such customers will undoubtedly be justified.

Unlike other services serving subscribers reactively (i.e., only upon the subscriber’s appeal), the curator of the Subscriber Department must act proactively. He must constantly monitor the status of VIP-clients transferred to him in "private property", providing them with the highest possible level of service. Accordingly, Mr. Y's system is structured in such a way that the income of the curator directly depends on the following parameters:

• the duration of use of the company's service - the curator receives a share of the subscription fee of the VIP client;
• timeliness (and even timeliness) of payments for services — the curator receives additional remuneration for receiving an advance payment from the subscriber, and incurs losses in the event of a receivable;
• subscriber satisfaction with quality of service - the subscriber may require a change of curator if he is dissatisfied with his work.

Open questions

If you have read this far, you probably noticed that we have already exhausted all the letters in our dubious abbreviation “ PIPEC )”, but have not yet spoken about programmers.

Anyone who is intimately familiar with the telecommunications business will agree that billing is at least half of marketing. Building on the proverbial “four pi” concept (Product, Price, Place, Promotion), billing is directly related to at least two of these “pi”.Do you want a new tariff plan (Price)? Or additional service (Product)? One answer is billing!

On the other aspects of the utility of billing can not even mention, because the list will be too long. So it is not surprising that for many years programmers were full-time employees of S-Telecom.

But it just so happened that about six months ago, the entire programmer’s staff of the Internet provider stood out as a separate company, which now serves S-Telecom on a contractual basis. So the question of building a market relationship between programmers and the company decided on its own.

There are a number of interesting observations related to the separation of programmers. For example, payment of programmers for servicing subscriber requests sent to them is now taken into account “by the piece” for each request. As a result, each new request is not perceived by programmers as an extra job, but on the contrary - as a “little joy”, or the possibility of additional earnings. The head of programmers indicates that the billing maintenance processes are built in his division on the same principles as described above for SITP / TS .

In addition, the company has become very selective in choosing projects related to billing innovations. Previously, any such innovation was considered simply necessary, and its implementation was considered only as a matter of time, now S-Telecom’s management carefully compares the possible benefits of innovation with the cost of their development.

So within the framework of this note we did not describe the work of programmers, considering them as a “black box”. This is one of the reasons to continue this series of publications, since many more interesting questions remain uncovered, including:

• How to determine the intrinsic value created by each process
• How to determine the share of internal profits paid to employees
• How to introduce Mr. U systems step by step