Page 140 - DMGT205_SALES_MANAGEMENT

Sales Management

Notes Determine Commission Base

Important aspect of designing a straight commission system is to select the base on which to pay
the commission.
1. If obtaining volume is the main concern then total sales is the base.

2. If sales personnel make collections on sales, then commissions are based on collections.
3. If a firm has excessive order cancellations, commissions can be based upon shipments,
billings or payments.

4. To control price cutting by sales personnel, some companies base commissions on gross
margin.
5. Some companies use net profits base, seeking simultaneously to control price cutting,
selling expenses and net profits.

Salary Plus Commission

Most sales compensation plans are a combination of salary and commission plan. They develop
as attempts to capture the advantages and offset the disadvantages of both the salary and
commission systems.
In commission plan, executive has weak control on non-selling activities while in salary method
it is not so.

Advantages

1. Security of stable income and financial incentive.
2. Management has greater control and apparatus to motivate sales force.
3. A cooperative spirit develops between salesmen and the company.

Disadvantages

1. Clerical costs are high.
2. The split between fixed and variable component is 60:40 to 80:20.

9.11 Factors Influencing Design of Compensation Scheme

Irrespective of the basic structure of compensation, some factors cannot be overlooked while
designing a compensation plan for companies.

Relation with Product Life Cycle (PLC)

All products undergo various stages of introduction growth, maturity and decline. The selling
effort is related to this (PLC) stage.
When the product is in the introductory stage it is difficult to sell the product. Therefore the sales
force must be dynamic, enterprising, willing to travel, to be able to establish the product in the
market. It should have good knowledge of the product, good communication skills and
tremendous willingness and endurance to pursue the goals that are to be achieved. Therefore in
the introductory stage direct salary will be on the higher side and indirect benefits may not be
introduced.

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