In your experience which of the four primary methods is the most effective way for managers to control the expenses of their salespeople? So there are three fundamental methods that are used. The one is that the salesperson pays their own expenses and manages that process. Number two, company pays all expenses as submitted. Number three is the company pays expenses with some type of limit to expenses and all, and the fourth plan is really a combination of the three that I've just mentioned at all. So we had to begin with the understanding that of the three plans that we've talked about now each of them have definite advantages and disadvantages. There's no one plan that I think is ideal. So what you find happening often is companies tend to adopt combination plans because the feeling is that the disadvantages of one plan is offset by the advantages of another right? So they tend to play off on those things. I think that, probably if you were to look at some of these have to do with certain industries have certain practices that they approach things with like certain industry may just as a characteristic of that industry tends to compensate sales expenses a certain way such as the first method, just letting salespeople pay for their own expenses, increasing their compensation to cover those expenses and all. So in those situations it's really a function of the industry characteristics and all but I would say, I think that probably having a company reimburse for all sales expenses but with limits is probably the one that is the most popular of them all. I think that what that does is allows the company control and staying on top of what those expenses would be and at the same time puts some type of a cap on it, you just don't want people feeling like they have carte blanche to to spend whatever they want. That's not smart either. So having some type of a cap or limit or policy is the way to go. Do you have a story about a time when a salesperson's expenses were out of control? I think, I've had situations particularly with salespeople who are in sales territories that are relatively new for the company and they are trying to develop that particular region and all. So what happens then is that the salespeople they're spending a fair amount of time in that territory. They're trying to establish and build relationships. They're incurring a lot of expense in terms of doing that, that sales aren't necessarily going to happen right away right? Sometimes it takes an investment in that territory to determine that. My experience is salespeople are born optimist and they're feeling like we got to do this and don't worry about things sales are just around the corner and another month goes by and another month goes by and all. So sometimes management's patience is tested in particularly with how long it's going to take to develop a sales territory and all. I would say that in particular when you're in that type of a situation, the sales manager needs to be involved in that territory too. They need to spend some time with that salesperson and calling on customers. You need to make a decision on your own about, are we making some progress in that market? Are we moving customers towards becoming a customer of ours or not, right? The only way you're going to get that is by actually putting boots on the ground yourself, right? Just taking the salesperson's word that's not necessarily the best way to go. What are some advantages and disadvantages of leasing a company car? So there's two, I can just say maybe possibly three automobile options and the one would be purchasing a car just outright. Next is leasing a car and the third would be where you are compensating a person for using their own car and so much per mile and that type of thing. I think that our accounting friends have shown that when you talk about buying versus leasing right? So the option one and option two, the leasing is pretty much the way to go. You don't want to tie up your money and the company in terms of owning an asset like a car and then not really able to recoup those monies until you turn the car back in and so forth. So I think companies have figured out that if you're going to procure transportation for a salesperson, leasing is a pretty strong option. The big question becomes though leasing versus compensating someone for using their own car and some of that I think is a function of the nature of the sales job and how much a person is expected to use their car and all. I think it's reasonable to think that if a salesperson is using their car every day and putting a number of miles on the car, there's going to be some pushback on terms of using your own car right? I mean, even though I know I'm being compensated for it and all, I think that there's a sense that just unfair at all. On the other hand, if a salesperson only has to use an automobile every so often just of an occasional basis and all, then I think it's entirely reasonable to ask them to use their own car and compensate them for that and all. So I think that there's a number of options for companies. I think it's a combination of understanding what the nature of that job is, how much of cars being used as well as the financial analysis that's been done. So there are tangible benefits to an employer using GPS tracking on employee vehicles, but what are some of the potential problems that might arise from that? Well, I think the biggest problem really is one of privacy concerns and I think that some people tend to be pretty agitated about, feeling like a GPS tracking and these kinds of things that a company is exerting undue surveillance on salesperson and all. I have to say that as a general comment and I hope I don't get myself into any kind of hot water when I say this, but as a general comment. We as consumers, we have given away almost all of our rights to privacy. Thanks to the Internet and everything else. Everything is public and it's very hard to control that and all. I think that what is important for companies is that is being transparent and full disclosure right? What I think is not right is using that kind of system and then surprising someone with it and talk to them about how they're spending their time at all when they didn't even know such a thing was occurring. So I think being open is the way to go. How does depreciation play into sales expense control? Well, so this is the interesting thing. When you talk about depreciation, depreciation is a tool that has to do with assets that a company owns, and the idea is that over time the value of that asset decreases and one has to account for that decrease in value and that's called depreciation. When you talk about sales expense control, really, the only asset that I think is of any meaningfulness would be an automobile, and that's only if you purchased the automobile outright. If you're leasing the car, you don't take ownership of it, you don't claim that as an asset. So, then therefore, the depreciation is just an irrelevant consideration for you. I think that's partly why you've seen the big move towards leasing as opposed to outright ownership. Do you have a sales expense story to tell us, whether it's a success or a failure, and what you learned from it? I can recall this was long ago. There was a salesperson that, so it used to be back in the good old days. What was interesting was if you went to a restaurant, and you incurred and when they would present the cheque, this was like all these computer systems that the restaurants use and all. So, cheques were these handwritten documents. The waiter or waitress would write down all the items, and put the price, and add it all up. Then at the bottom of the guest cheque was like a tear-off little receipt that had a number to it and it corresponded to the number of that. It used to be back in the day that you could submit that receipt and then just tell the company how much the cheque was for. Whether you paid for it with a credit card or cash, it didn't matter, you just turned in in effect that receipt. Theoretically, you could go back to that restaurant and at least pull that cheque and compare it, and then so forth and all. There was a salesperson who was reporting to me that I got a sales expense, and this person was really famous for doing that kind of thing. For some reason, I don't know why but it just seemed like something caught my eye about these little tear-off receipts and all. So, then I go back to our billing department and I get the last four or five expense reports that this person had submitted, and noticed that each of them had the same receipt, it had come from the same restaurant. Okay, that's not necessarily a big issue except that the serial numbers were consecutive. So, what this person had done was obviously gone to the restaurant, somehow carried favor with them, gave them a whole bunch of these guest cheques, and the person was turning them in as if they were legitimate expenses when in fact, he never did incur those expenses and all. So, that was a rather awkward conversation with the person. But I remember going to them and saying, ''I need you to explain something to me here.'' I just put all the expense reports out and I said, ''Here's your expense reports over the last period of time and all, can you help me understand? Like you're saying you go into this restaurant, how is it that over a multi-week period here, your expense cheques from the restaurant were consecutively numbered?'' Now, the person looked like as if they had seen a ghost, and eventually fessed up to the thing and all. It was one of the things where we didn't fire the person, we reprimanded them and all. Although the person ultimately left the company within about a year's time, and probably was good for all parties involved. Is there some sort of sales expense formula for calculating sales expenses? Certain industries do track that kind of thing and looking at as a percentage of revenue, that expenses are incurred and all. It's a little bit tricky and I'll tell you, what it has to deal with would be your profit margins. So, the bigger the profit margin you have, in a sense, the more expense you can cover with those profits. So, you have a tendency to see in high margin industries, and I'll name one in particular, is the pharmaceutical industry. So, they have some pretty attractive profit margins and all. You will see that their sales expenses as a percent of revenues are high, but in a sense they can cover those because of the dynamics of that industry. So, you have to take these things with a little bit of a grain of salt and recognize that different markets, different categories can have different business models, different pricing dynamics that go on with it and all, but you can get that data.
