Chapter 12 compensating 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 Matrix Customer ConvergenceSelling AccountManagementLeverageSelling New Business Development New Current New PRODUCTS
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 everyone 2.Allow to design different plan to appeal salespeople needs 3.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