Page 136 - DMGT205_SALES_MANAGEMENT

Sales Management

Notes Provide for the Various Compensation Elements

A sales compensation plan has as many as four basic elements:
1. A fixed element, either a salary or a drawing account to provide some stability of income.
2. A variable element (for example, a commission, bonus, or profit sharing arrangement) to
serve as an incentive.
3. An element covering the fringe or plus factor such as paid vacations, sickness and accident
benefits, life insurance, pensions.

4. An element providing for reimbursement of expenses or payment of expense allowances.
Management selects the combination of elements that best fits the selling situation. The
proportions that different elements bear to each other vary. However, most companies split the
fixed and variable elements on a 60:40 or to 80:20 basis.

Special Company Needs and Problems

A sales compensation plan is no panacea for marketing ills, but it is often possible to construct
a plan that increases marketing effectiveness. If a company's earnings are depressed because
sales personnel overemphasise low margin items and neglect more profitable products, it may
be possible, despite the existence of other managerial alternatives, to adjust the compensation
plan to stimulate the selling of better balanced orders. Specifically, variable commission rates
might be set on different products with higher rates applying to a neglected product.

Or, as another example, a firm might have a "small orders" problem. It is possible to design
compensation plans that encourage sales personnel to write larger orders. Commission rates
can be graduated so that higher rates apply to larger orders.

Consult the Present Sales Force

Management should consult the present sales personnel, in as much as many grievances have
roots in the compensation plan. Management should encourage sales personnel to articulate
their likes and dislikes about the current plan and to suggest changes in it. Criticism and
suggestions are appraised relative to the plan or plans under consideration.

Reduce Tentative Plan to Writing and Pre-test it

For clarification and to eliminate inconsistencies the tentative plan is put in writing. Then it is
pre-tested. The amount of testing required depends upon how much the new plan differs from
the one in use. The greater the difference, the more thorough is the testing. Pre-tests of
compensation plans are almost always mathematical and usually computerised. If the sales
pattern has shown considerable fluctuations, speculations are made for periods representative
of average, good and poor business.
Then a look is taken into the future. Utilising sales forecast data, new and old plans are applied
to future periods. The plan is tested for the sales force as a group and for individuals faced with
unique selling conditions. Analysis reveals whether the plan permits earnings in line with the
desired compensation level. If deficiencies show up the plan may not be at fault; made or to
inaccuracies in sales forecasts, budgets, or quotas.
To conduct a pilot test, several territories representative of different sets of selling conditions
are selected. The proposed plan is applied in each one long enough to detect how it works under
current conditions.

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