Know-How Exchange : Other

The percentage will depend on a number of factors, most important being your marketing objective. If you're trying to grow aggressively, you may have to pay more; if you're milking the cash cow you can probably get by with less.

The right number is probably between 1% and 25%, depending on these many factors. Think that's a big range? You're right. Figure out how important the next incremental dollar of sales is, and what the lifetime value of a customer is, for your company and that will give you a good start.

There are companies -- think infomercial production companies -- that think 60% is a good percentage for the sales commission. There are others that are down in single digits.

In my opinion not only the fact if you need to grow or not is important. You have to take your margin into consideration as well. Besides, your business model should tell you how much revenue your franchise carry over from previous years thanks to how strong/ week your brand is. Is it your main channel of revenue generation or one of many?

Adam

While the range posted above (1-25%) may be true, 10% is the average. The key factors relate to what is needed to attract and retain the right talent in your market plus the level of influence the individual has over customer behavior. The greater the influence, the higher the leverage typically.

In addition, you should ABSOLUTELY model the costs at various levels of attainment. When you put in leverage numbers they might exceed the percentage for an individual you are comfortable with overall, but on average you still meet the budget.

Makana offers a powerful yet simple tool to help estimate these costs. Check out our website: www.makanasolutions.com. Get started with Motivator Express.

You need to spend as much as is needed to do the job and as little as possible so that you make a profit. The actual percentage is therefore determined by your determination of the above problem.

Averages in marketing are dangerous and if you think about it, utterly useless. What does an “Industry Average” mean to you in your business? If you spend less that it does that make you mean or clever? If you spend more, does that make you generous or stupid? If you spend the average and then make a loss because you knew that it was wrong for your business, that certainly makes you rather foolish and rather wastrel with your company’s money.

Also what does an average mean, when, as Mike has said, the range might be from 1% to 20%? It just means that whatever figure you fix on, if you haven’t worked it out for yourself, it is unlikely to be correct for you. That’s the correct use of statistics – you know that within a 1-20% range that the average figure has only a 1 in 20 chance of being right for you. Or that could be 1 in 40 or less if the distribution of industry figures is non-Gaussian and the average falls where no other companies happen to operate.

I have clients who spend between 3% and 25% on this problem. Even within the same industry sector the variation is that wide. I have none who operate within a percentage point of the average, which appears to be about 13.2%

Best wishes


Steve Alker
Xspirt