Know-How Exchange : E-Marketing

When I had a sales force in the event business. I gave them a base and a commission on the gross sales. I think it was 4% and I have seen higher. If there is no base then 10-12 % should be okay.

The problem I have with paying on gross profit is, generally, the sales people do not control gross profit and it is up to you to generate the highest gross you can and not worry about where the next sale is coming from.

You will get lots of different thoughts on this so in the end just work with the one you feel best fits your situation.

I say 20% commission on sales to new accounts, and and it will still be hard to find someone to work without a base.

First is the rep a hunter or a farmer? It is not the same.
SEcond you cannot pretend profit is not important.So use a profitability factor or kicker mechanism to work it out.It means the following:
Sales Credit = [Target Price – k (Target Price - Actual Price)] x Units Sold
The profitability factor should equal 1 divided by the product's percentage contribution margin at the target price, in order to calculate sales credits varying proportionally to the product's profitability.
For example, when the contribution margin is 20%, the profitability factor equals 5 (1.0 / 0.20). When a salesperson grants a 15% price discount, the discount is multiplied by the profitability factor of 5, reducing the sales credit by 75% rather than the 15% if there had been no profitability adjustment.
Consequently, when $1,000 worth of product is sold for $850, it produces only $250 of sales credit. But when $500 worth of product is sold for $550 (a 10% price premium), the salesperson earns $750 of sales credit ($500 + 5 x $50).
The credit for the concept goes to Thomas Nagle&John Hogan viz. The Strategy and Tactics of Pricing.

Adam

Then as I said give him sales goals at target prices and base your commision on a kicker solution.
Say you give him 20% commission but at a target price.
If the margin is less he gets less, if more than he gets more as the margin generated is larger.

Help me out here. If the rep has to hunt and farm and manage day to day stuff. Why wouldn't he just start a competing company himself? Then he could keep 100% of the profit margin.

Sales people sell.

Just an opinion developed since I started selling in 1981...so take it with a grain of salt.

Michael

Michael has made a good point as usual.If apart from hunting, he also farms and takes care of the daily operations I think you should seriously reconsider offering him some basic salary as soon as you get a foothold in the business.Otherwise Michael's scenario is quite likely.

Have you considered offering a base salary?

Even the best sales people can have an off month occasionally and you do not want their morale to drop because they do not get a dime.

Who says so? It does not have to be any percentage of gross profit.It's in your interest to link it to the money you earn and not sales you generate.At the end of the day it's bottom-line that counts.The guy will be happy if he earns decent money and knows the rules.There is no one good recipe for compensation.You have to test it and learn by trial and error.Do not expect your first shot will be perfect.What you should bear in mind is the money left should go not only into your pocket, but also toward future needs.
What I can say that if I were to hunt,farm and take care of faily operations with no basic salary only commission I would not accept it under 30%.

I think 30% sounds good but are there ongoingl earnings or is it the thing where they get a one-time 30%?

You need to have your incentives in line for the sales people not to churn and burn but to manage accounts, too.

People respond to the incentives you give them. So if you need incentives that encourage all of the outcomes you want not just one or you will really only get one.

I am in management and incentives really *do* influence daily actions, self-motivation, and morale in a big way. There is no question of that.

Put yourself in their shoes, what incentives would you need to achieve all of the goals you have set out? Work out the numbers and do it.

Think of it that way.You are implementing a highly lean company model.That's good, but how long will it work that way? I cannot imagine that hunting,farming and operations will be handled by same person ad infinitum.
So most probably this business model will have to be adjusted to the new needs.If we say that out of 100% profit roughly 33% goes to your pocket,33% goes to the jack-of-all trades and 33% goes to cover your overheads then you are left with no money to invest in order to be able to grow.Then it's about time to do something about it as growth is probably what you want.