Know-How Exchange : Strategy

At first glance I thought maybe your product is high volume and low margin-- cause 2% (2K on 100K) commission wouldn't motivate me at all. Then I saw your expected results-- $100K sales in a high vol/low margin product is nothing! So what is it? Perhaps this is a bonus or spiff vs commission??

I suggest putting it all down on spreadsheet for your CEO. What would an extra $100K in volume mean for the companies bottom line-- and what portion of that can go to the reps for the company to still be profitable. Include their base. Then do several "what if" scenarios. Try altering their plan-- less base, more commission.

I also maintain an independent rep agency. I am paid straight commission-- no base-- from 4%- 12% on high volume, low margin items-- that is about 50% of my agency volume and nets me about 80K in commissions.

Then I have low volume specialty items-- they pay up to 30%-- and are the other half of my biz-- same 80K here. Those are my actual last year figs. My biggest year was 325K, lowest 120K. My biggest year was 75% specialty items-- so you can see how those higher commissions can alter commission.

As an agent, I have a "grid" on where to price projects. I am compensated at the higher end for negotiating high, and my commission slides as the company's profit does. So I'm incentized to get the job-- at a good price and not leave any $$ on the table.

As far as "what if" the rep only achieves 80% of the volume? Well in my game, it means zero (when its a spiff vs commission). If you want to make it amiable, instead of the whole 100K, break it down in milestones and award quarterly or monthly incentives.

Sell Well and Prosper tm

I understand you 100 k is just an example.Anyway as a starting point I suggest you take gross profit or better still adjusted gross profit.By adjusted gross profit I mean profit adjusted by inventory carrying costs.
I totally agree with CarolBlaha that the system should reflect how much money goes to the company bottom line.The more company earn the more should a sales person earn.If you need a detailed idea of how the system should be constructed contact me offline using the email address you will find in my profile.
Getting back to your example if reaching say 90% of your target by a sales person is acceptable to the company you could think of some portion of the commission to be offered as consolation prize.

Adam

Adam

Interesting-- most true salespeople will ONLY be paid straight commission. No ceiling, and once they get a taste, they won't go back. I dont' know of a single good sales rep who would do otherwise. Why do you need a base if you are producing?? Would I have ever made 300K on a base? I think not

And, I am usually paid before the co is paid. I dont handle receivables. All my co's invoice-- they decide who is credit worthy and who isn't I have an occasional dead beat, but very very few. Granted, I can be back charged--but after the fact and only my commission. Most co's admit its their error and let it go. (non official policy)

Sell Well and Prosper tm

I think what CarolBlaha said is only natural.Cannot imagine companies paying sales reps or inside sales persons for giving away their products.
Mathhar, what do you mean by more options? Mor systems than one,a combination of salary and comissions, commission only system,bonus system?

Adam

I do like the idea of having marketers on incentive comp plans, but not everybody should be on a "commission" plan. It can widen the gap between sales and marketing and encourage even more finger pointing than before.

I would suggest that you give marketers who are responsible for lead generation their own quota of opportunities that they need to generate. These should be "opportunties" as jointly defined by you and the sales team. In other words, these aren't just names, but leads that are qualified according to certain benchmarks you have set e.g. active project, ready to talk to sales, right target market, or whatever makes sense for your business.

Defining an opportunity is critical to stop the finger pointing between sales and marketing. You might want to refer back to an article I wrote on my blog Leads are For Marketing. Sales Wants Opportunities. https://themarketingsurvivalist.blogspot.com/2008/06/leads-are-for-marketin....

If you are trying to incent marketers that are doing things other than lead generation, I favor quarterly MBO goals. You could also have a bonus plan that everyone shares in if the sales team surpasses 100% of quota for the year. Those types of annual incentives can get everybody really focused at end of year. However, doing them more often can easily dilute the excitement and the incentive quickly gets ignored.

All the best!

Melissa

Thought I would add the following article to the mix, https://www.gtms-inc.com/tip_salescompensation.htm. If you're looking for real examples/calculations for your presentation, it might be worth downloading their Sales Compensation Plan Template (link found at the end of the article). It isn't that expensive, and is an Excel spreadsheet that would allow you to run different scenarios out to demonstrate the numbers to your Board.

Hope it helps.

Regards,
Sue

Salary-plus-commission is the way to go. This way, you can minimize the cost of employing sales folks who aren't performing. In a recession like this one, no one wants to fire people. We're friends with our employees! We want them to succeed in their jobs, and for both the company and them to profit as a result. But, if they're not performing, you can't be expected to sustain the costs of their employment indefinitely. Anyways, there are a whole slew of other problems associated with sales commissions. If you miscalculate commissions, or fail to pay them in a timely fashion, you will discourage your sales people. One way to avoid these problems is to use automation software. I use Nirvaha's commission software to deal with my commission calculations. They also make quote software and
billing software. There's tons of software that gets this done out there, but this is the best I've been able to find.