Chapter 12compensating salespeople

Compensation objective

_ compensation is one of the most important motivating and retaining field salesperson

_ sales force compensation is a cost that can be quickly spiral out of control if the compensation plan is design improperly

Compensation objective

So the useful tool to translate company objectives and desires of salespeople into an appropriate compensation plan is to consider the customer product matrix

The Customer-Product MatrixThe Customer-Product Matrix

CustomerConvergenceConvergence

SellingSelling

AccountAccountManagementManagement

LeverageLeverageSellingSelling

New BusinessNew BusinessDevelopmentDevelopment

New

Current

Current New

PRODUCTSPRODUCTS

Compensation methods

combination plan : combine salary with some types of incentives (like bonus and commission ) managers used these incentives for intermediate level of salespeople

Straight salary

_ Involves paying a fixed amount each pay period .

Advantages :1. More control over wages level 2. Allow maximum control over sales

people activities Limitations :1. Salary don’t provide strong incentives for

extra effort.

Straight salary

2. Salaried employees required supervision

3. This method overpay the least productive members of sales team

Application :

1. In competitive environment

2. when team selling is important

3. sales of complex products

4. When product are resold through advertisements

Straight commission

_ salespeople on commission are paid a percentages of the sales or gross profit they generate

Advantages :

1. Foster independence of actions

2. Maximum incentives

Straight commission

Limitations :

1. Little control over commission people

2. Turn over when business conditions are too bad

Application :

1. When maximum incentives is needed and minimum post sale service

Salary +Bonus

- Used to provide representatives with income security while the bonus gives added incentives to meet company objectives .

_ Bonus : are discretionary payment for reaching specific goals and are paid annually

Salary +Bonus

Advantage:1. Balance the need to control selling

expense and provide extra rewards 2. lower turnover Limitations : 1. In some firm the size of bonus is so

arbitrary 2. Deals with the relation between

performance and rewards

Salary + commission

_ to give a salespeople a push needed to sell complex products and services

Advantages :-

1. Commission rate can be adjusted to promote the sale of individual products

2. Paid monthly

3. Discourage salespeople to leave the company

Salary + commission

Limitations :

Expensive and costly to administer

Application :

In industries where business fluctuate with seasonal or economical cycles

Salary + commission +Bonus

_ the most comprehensive plan combine the stability of the salary , the incentives of a commission and special rewards of bonus

Advantages :_1. Allow manager to reward everyone2. Allow to design different plan to appeal

salespeople needs3. Earn more money

Salary + commission +Bonus

Limitations :-

This method is too complex

Application:

Industries such as electronics and business services .

Commission +Bonus

Combines the incentives of a commission and a special rewards for meeting firm’s objectives

Advantages :

1. Easy to understand

2. Simple to administer

3. Similar cash flow benefit

Commission +Bonus

_Limitations :Perceived equity of the year end bonus

that’s mean a typical high performing sales person become frustrate when he or she sees that top salesperson receive larger year end bonus

_Application :Suited to companies which use independent

sales Rep .

Conclusion for these methods

So company recognize that compensation plans are than just a way to pay people for their service they become everything from recruiting tool to culture driver .

Customer satisfaction and sales force compensation

_ The concept of TQM focus on delivering high quality products & making sure customers are satisfied

Team selling plan

Team selling : involves two sale persons in separate territories need to coordinate their activities and work together to complete the sale

The customer demand and the complex of business environment making team selling is more common

Profit based commission

The main objective of compensation program is to provide direction to sales force to achieve business objectives .

In the profit based commission company and salespeople share the same pool of money (Gross margin) both are interested in maximizing the amount .

Setting pay level

• Beyond the issue of what plan to use is the question of how much to pay ???

_ so we have to determine the appropriate level of wages to pay sales people .

_Availability of qualified people in the labor market