Rewarding Sales Reps Through a Commission Plan:When is it the Right Plan to Use?

October, 2013

Prepared by:Jerome A. (“Jerry”) Colletti, Managing Partner

Mary S. Fiss, Partnerwww.collettifiss.com – (480) 483-1480

© Colletti-Fiss, LLC, 1999-2013

Presentation Objectives

Indicate why this is an important topic

Present features of a “true” commission plan

Describe when commission is the right plan to use

Offer tips to avoid improper use

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Notable Quote

“….we want to implement a commission plan because I want our reps to sell more….!”

Division President, Telecommunications

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Notable Quote

“…our sales people aren’t hungry enough; we need a commission plan!”

Sr. VP, Financial Services Company

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Notable Quote

“…our sales people aren’t selling the right mix of products; we need to use a commission plan!”

VP, Product Marketing, Specialty Chemical Company

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Why is the Concept of A Commission Plan So Appealing?

“Quick Fix”

Variable Cost

Immediate Return

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Misconceptions About Commission

Can’t hurt!

Results will improve quickly

It’s a simple solution!

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Commission-Strategy Mismatches:Some Illustrations

Sales Strategy Commission Plan – Good Idea, But Wrong Solution

Win new customers (in established market)

…maybe not, since products may be viewed as commodities

Reverse revenue decline …interesting, but industry overcapacity not lack of sales effort led to price war and subsequent revenue decline

Shift sales to more profitable products

… assumes sales reps can migrate buyers away from or to products

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Features of “True” Commission Plan

Fixed or variable rate

Applied to sales transaction –dollars or units

Not a “disguised” bonus (i.e., individual rates based on personalized quotas)

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Sales Models That Support Use of Commission Plan

Ideal Sales Situation

Single focus on sales volume

Sales person adds significant value to customer’s purchase decision

Uniformly high profit margins

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When Is Commission The Right Plan?Market/Customer Characteristics

Relatively new or an emerging market

Limited product portfolio

Relatively short sales cycle

“Seller-driven” purchase decision

No or unreliable sales forecast

Relatively equal territories/sales potential

Capability to track/assign sales credit exists

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Sales Environment in which Sales Reps Operate

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Four Factor to Consider when Deciding About Applicability of a Sales Commission Plan

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Four Tips on Avoiding Misuse

Explore all options

Confirm that the “sales problem” can in fact be fixed in part or total with a commission plan

Don’t compromise on required characteristics for success

Think ahead – how do we implement it; how long will a commission plan work; how will we replace it

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Summing Up:Is a Commission Plan the Right Incentive Solution?

It depends; what’s the point?

– Typically, commissions are pushed into situations where they don’t belong!

– Too much is expected!– However, when well-thought out and matched to the right

sales situation, they do work!

Your challenge – be persistent, don’t give in to a situation where “…if we just implement a commission…” is the mind-set!

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