Page 72 - DMGT507_SALES AND PROMOTIONS MANAGEMENT

Sales and Promotions Management

Notes

Caselet Finding the Right Pay Scale for your Sales Force

As told by Karen E. Klein
here is no tried-and-true formula for pay structure that holds across the board. The
manner in which you compensate your salespeople will vary, depending on many
Tcomplex factors, including your particular industry, your sales cycle, your company's
market position, the strength of your product or service and – not least – your individual
salesperson and his or her experience. Experts say that your best source of information
will be found in the trade organizations and publications that serve your industry. Trade
journals often do annual compensation surveys that should be helpful, and they will give
you a sense of the pay standards that have been developed in your industry. "There are
basic formulas for people who sell shoes, or insurance. There are mores in each market
that have been developed by trial and error," says Ben Tenn, a sales, marketing, and
distribution consultant who owns Tenn Consulting in Northridge, Calif. "You should
reach out to other people in your industry. Ask salespeople that interview with you what
they're being paid, and, if you get a chance, talk to your competitors about how they pay
their sales force. "In general, companies that sell highly predictable products or services
with very short sales cycles weight their compensation heavily on commissions. An outside
sales rep, someone not a direct employee of your company, will make 100% commission.
So, typically, will an insurance agent, and people who sell health club memberships, time
shares, or dating services. Salespeople in food service and retail, such as waitresses and
sellers of shoes, tend to make minimum wage as a base salary, with most of their income
derived from tips and commission. On the other end of the spectrum are those selling
consulting services or enterprise-wide software, industries where the sales cycle – the
time between initial contact with a prospect to closing a deal – may be 6 to 18 months. In
order to keep the salesperson from starving, he or she will need a reasonably good base
salary until commission can be earned. In the middle range are those industries with sales
cycles of three months or more – executive recruiters, technology salespeople, and those
hawking telecommunications services – who tend to get salary-to-commission ratios in
the 40-60 or 50-50 range.
If your business is a startup with a volatile product that may be a hit or a dud, you'll need
to compensate your in-house sales force with a livable base salary, at least until they make
contacts and sales take off. "In a small business, everything is negotiable. What you want
is a sales staff that is hungry – but not too hungry, or they will be thinking about their own
personal living situations too much to be effective in developing relationships with
potential customers," says Sam Parker, co-founder of justsell.com, an Internet sales and
marketing portal based in Fairfax, Va.
Source: businessweek.com

3.2.3 Types of Compensation Plans

There are only three basic type of compensation plans – straight salary, straight commission and
a combination of salary and variable elements.

Straight Salary Plan

This is the simplest compensation plan. Under it, sales persons receive fixed sums at regular
intervals (usually each week or month but sometimes every two weeks), representing total

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