Question

Topic: Strategy

How To Set New Commission For My Super Salesman?

Posted by ziczacxann21 on 10/16/2011 at 11:25 AM ET 250 Points
I would like to get some ideas from everyone about how to set commission scheme for my salesman.

My guideline is that the salesman's total package (salary+commission) should not be more than 10% of the total sales he generated. For my salesman, I am going to give him $1,500 per month as basic fixed salary (this is the average rate that a salesman in my industry in my area is earning as basic pay)

I would like my salesman to be able to sell at least $50,000 per month on average. And if he can sell $100,000, I am willing to give him a bonus.

Now, based on the fact my salesman's total package (salary+commission) should not be more than 10% of the sales he generated, how should I work out a nice commission scheme that will motivate him to achieve at least $50,000 every month and maybe even $100,000 in some months? I know there should be some kind of steps like when he achieve a certain sales, the percentage will jump....but how do I do that?

Could someone show me some calculations please?

Thank you very much!



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RESPONSES

  • Posted by CarolBlaha on 10/16/2011 at 11:32 AM Accepted
    Well in the example of $50,000 month sales. If you don't want to spend more than $5K, $1500 base, plus 7% commission ($3500) equals $5K.

    Keep the 7% plan, and give bonus up to 1K when he hits 100,000-- and you'll still be at 10%.
  • Posted by mgoodman on 10/16/2011 at 11:58 AM Accepted
    Why not keep it simple:

    $1,500 base salary, plus
    6% commission on the first $40,000 in sales,
    9% commission on the next $40,000 in sales, and
    12% commission on everything over $80,000 in sales

    So when he sells:
    * $40k in a month, he earns $3,900 (9.75%)
    * $60k in a month, he earns $5,700 (9.50%)
    * $80k in a month, he earns $7,500 (9.38%)
    * $100k in a month, he earns $9,900 (9.90%)

    This should motivate him to get to at least $50k each month, and when possible to get to $80k+. And your cost will be less than 10% unless/until he sells more than $105k in a month.

    The other approach would be to simply pay him 10% of sales, with a guaranteed, non-refundable draw of $1,500 against his commission. (If he doesn't sell more than $15k in one month, he still gets his $1,500.)
  • Posted by Peter (henna gaijin) on 10/16/2011 at 8:45 PM Member
    Not sure why the limit of 10% of sales? Is this arbitrary, or is there some business reason for this?
  • Posted by michael on 10/17/2011 at 2:30 PM Member
    So you're going to CAP your super salesman? A smart salesman will then learn how to sandbag so he/she can work less in some months.

    It's also a good way to be sure he/she will always be on the lookout for a better opportunity.

    Michael
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