FedEx recently reduced the base salary for its inside sales representatives by at least $12,000 a year making them more reliant on bonuses, according to a report from Freightwaves.
Sales representatives, who used to make a minimum base salary of $50,000 a year, will now only make $38,000 a year. Base salaries for inside sales reps at FedEx top out at around $90,000 a year.
Additionally, the company is changing the minimum educational requirement for sales reps, eliminating the need for a college degree. Now a high school diploma or GED is sufficient, the Freighwaves report said.
This could be a sign of a tight labor market making it more difficult to find applicants for this role.
Inside sales representatives do not visit clients and communicate with them only by phone or email. Their customers are often small to mid-size shippers.
Larger customers are handled by local field staff or corporate sales representatives. So, if an inside sales representative grows a customer large enough, that customer is often lost to a local representative.
Similarly, previously large customers end up being transferred to the inside sales team when their volume drops and is no longer lucrative for field sales staff to manage.
Due to this dynamic, inside sales find themselves in a strange situation. If they are successful, they lose the customer. While if a large customer drops their volume too much, they are moved to inside sales, which is often perceived as an account service level downgrade by those customers.
These “downgraded” customers can quickly become more disenfranchised with the company as inside sales reps earn bonuses for growing businesses, not maintaining existing clients that have leveled off or are declining.
Why This FedEx Move Matters to Small Business Sellers and Merchants
It seems FedEx’s decision to reduce base pay is to place more emphasis on recruiting new customers for the company to boost its FedEx Ground division.
FedEx Ground has become a problem division for the company. In its last earnings report, FedEx said the Ground division’s income dropped 9% year-over-year due to network inefficiencies and labor costs.
Its other divisions increased their income, making FedEx Ground somewhat of an outlier within the company.
At first, the base salary drop could be construed as a cost-savings measure. But FedEx inside sales reps manage the three primary services, FedEx Express, FedEx Ground and FedEx Freight. So, the team oversees more than just Ground and it would seem it’s less of a cost cutting measure, but one to drive new business.
With USPS parcel rates continuing to increase yearly and new fees on larger packages being introduced this weekend, FedEx Ground is becoming more competitive with the Postal Service.
And this might be at the heart of the inside sales team pay structure change. By lowering the base pay, an inside reps total pay will be more significantly influenced by new customers growing within FedEx.
FedEx inside reps receive quarterly bonuses based on the year-over-year growth of customers they handle, Freightwave said. The drive now is for these reps to find new customers and grow them to make up for the base pay loss through bonuses.
The knock-on effect will likely be that existing customers receive less service than ever before, potentially placing those accounts at risk to be poached by its primary rival UPS.
How this dynamic may play out in turning around the declining income problem at FedEx Ground is anyone’s guess at the moment. New business is good, but if that puts the existing business at risk, it seems that may be counterproductive.
In addition, the number of FedEx’s inside sales team is estimated to be between 300 to 500. It’s not a huge number and current reps may seek opportunities elsewhere after having their base pay cut, potentially leaving less experienced reps to not only find new clients but also handle existing accounts.
That seems like a bit of a gamble.
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