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Compensation through easy-commission


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easy-commission automates sales commission process.

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Compensation through easy-commission

  1. 1. <ul><li>Professor Chip Besio </li></ul><ul><li>Sales Management </li></ul><ul><li>Marketing 3345 </li></ul>Customer Satisfaction and Compensation
  2. 2. Convergence selling Account management Leverage selling New business development New Current Customers Current New Products The Customer-Product Matrix
  3. 3. <ul><li>Comp Type Best Performance Impact </li></ul><ul><li>* Motivate effort on non-selling activities </li></ul><ul><li>Salary * Adjust for differences in territory potential </li></ul><ul><li>* Reward experience and competence </li></ul><ul><li>Commissions * Motivate a high level of selling effort </li></ul><ul><li>* Encourage sales success </li></ul>Compensating Salespeople
  4. 4. <ul><li>Comp Type Best Performance Impact </li></ul><ul><li>* Direct effort toward strategic </li></ul><ul><li>Incentive objectives </li></ul><ul><li>Payments * Provide additional rewards for (Bonus) top performers </li></ul><ul><li>* Encourage sales success </li></ul><ul><li>Sales * Stimulate additional effort </li></ul><ul><li>Contests targeted at specific short- term objectives </li></ul>Compensating Salespeople
  5. 5. <ul><li>Comp Type Best Performance Impact </li></ul><ul><li>Personal * Satisfy salespeople’s </li></ul><ul><li>Benefits security needs </li></ul><ul><li>* Match competitive offers </li></ul>Compensating Salespeople
  6. 6. Straight Salary 17 Straight Commission 19 Combination Plans (83%) Salary Plus Bonus 24 Salary Plus Commission 20 Salary Plus Bonus Plus Commission 18 Commission Plus bonus 1 Total 100% Percentage of Companies Using Use of Compensation Plans Source: Adapted from Sales Compensation Concepts and Trends (New York: Alexander Group, 2004).
  7. 7. Comparing Salary and Commission Plans for Field Sales Representatives 0 100 200 300 400 500 10,000 20,000 30,000 40,000 Straight Salary 10% Commission Total cost per person (thousands $) Sales Per Person in Thousands 50,000 Comparing Salary and Commission Plans
  8. 8. <ul><li>IBM places significant resources toward monitoring customer satisfaction. </li></ul><ul><li>All customers are surveyed annually on: </li></ul><ul><ul><li>Overall customer satisfaction </li></ul></ul><ul><ul><li>The rep’s knowledge of the customer </li></ul></ul><ul><ul><li>The transaction or solution itself </li></ul></ul><ul><ul><li>How satisfied the customer is with the solution </li></ul></ul><ul><ul><li>The installation process (smooth or disruptive), including how long it took </li></ul></ul><ul><ul><li>The extent and clarity of the education provided </li></ul></ul><ul><ul><li>The time needed to get the application(s) up and running </li></ul></ul><ul><ul><li>The capability and speed of technical support </li></ul></ul>Customer Satisfaction and Compensation
  9. 9. <ul><li>Results are benchmarked against prior IBM performance, as well as the competition </li></ul><ul><li>Results are used for compensating sales reps and managers. </li></ul>Customer Satisfaction and Compensation
  10. 10. Total Salary Incentive Compensation Position ($000) ($000) ($000) Top Sales Executive $91.0 $29.0 $120.0 National Account Manager 72.2 26.0 98.2 Regional Sales Manager 74.5 21.9 96.4 District Sales Manager 64.5 20.3 84.8 Key Account Rep 57.4 22.9 80.3 Senior Sales Rep 47.5 26.0 73.5 Intermediate Rep 36.1 15.3 51.4 Entry Level Rep 29.7 13.4 43.1 Compensation Levels for Firms using Salary Plus Incentives Sales & Marketing Management Compensation Survey, 2005
  11. 11. <ul><li>ENTERPRISE RELATIONSHIPS $121,800 </li></ul><ul><ul><li>Customer solution more important than price; team selling approach </li></ul></ul>$64,400 $43,300 <ul><li>CONSULTATIVE RELATIONSHIPS $97,100 </li></ul><ul><ul><li>Creates new value; tailors product to customer needs </li></ul></ul>$62,700 $42,300 <ul><li>TRANSACTIONAL RELATIONSHIPS $83,300 </li></ul><ul><ul><li>Sells on price; product is a commodity </li></ul></ul>$52,500 $36,700 Top-Level Mid-Level Entry-Level Compensation Levels by Account Relationships, 2005
  12. 12. <ul><li>Salespeople expect cars or allowances </li></ul><ul><li>Insurance and travel are very common </li></ul><ul><li>Some plans offer a choice of alternatives </li></ul>Selecting Benefits
  13. 13. <ul><li>A. Straight Salary </li></ul><ul><ul><li>Control wage levels </li></ul></ul><ul><ul><li>easier to control rep’s activities </li></ul></ul><ul><ul><li>increases loyalty to firm </li></ul></ul><ul><ul><li>fails to provide incentives </li></ul></ul><ul><ul><li>high costs when sales are low </li></ul></ul><ul><ul><li>most common in complex business selling </li></ul></ul>Compensation Methods
  14. 14. <ul><li>B. Straight Commission </li></ul><ul><ul><li>maximum incentive </li></ul></ul><ul><ul><li>all variable cost </li></ul></ul><ul><ul><li>low costs when sales/salesperson </li></ul></ul><ul><ul><ul><li>is low </li></ul></ul></ul>Compensation Methods
  15. 15. <ul><li>B. Straight Commission </li></ul><ul><ul><li>hard to control reps </li></ul></ul><ul><ul><li>low loyalty </li></ul></ul><ul><ul><li>pay low when business is weak </li></ul></ul><ul><ul><li>used in small firms, door-to-door, retail sales, insurance, stock brokerage, printing </li></ul></ul>Compensation Methods
  16. 16. <ul><li>C. Combination Plans </li></ul><ul><ul><li>Most common today </li></ul></ul><ul><ul><li>1. Salary + Commission </li></ul></ul><ul><ul><ul><li>base for non-selling activities </li></ul></ul></ul><ul><ul><ul><li>commission for incentive to push complex industrial accounts </li></ul></ul></ul>Compensation Methods
  17. 17. <ul><li>C. Combination Plans </li></ul><ul><ul><li>Most common today </li></ul></ul><ul><ul><li>2. Salary + Bonus </li></ul></ul><ul><ul><ul><li>base for non-selling activities </li></ul></ul></ul><ul><ul><ul><li>bonus to reward completion of special tasks in consumer products selling </li></ul></ul></ul><ul><ul><li>3. Salary + Commission + Bonus </li></ul></ul><ul><ul><ul><li>rewards every activity , BUT costly to administer </li></ul></ul></ul>Compensation Methods
  18. 18. <ul><li>Trend toward TEAM selling </li></ul><ul><ul><li>difficult to reward team members for group effort </li></ul></ul><ul><ul><li>usually emphasize shared commissions / bonuses </li></ul></ul>Other Considerations
  19. 19. <ul><li>Profit-based Commissions </li></ul><ul><ul><li>Gross margin commissions </li></ul></ul><ul><ul><ul><li>Salesperson & firm attempt to </li></ul></ul></ul><ul><ul><ul><li>maximize same $$ </li></ul></ul></ul><ul><ul><ul><li>raise wages for salespeople often at expense of company profits </li></ul></ul></ul><ul><ul><ul><li>tends to increase industry price </li></ul></ul></ul><ul><ul><ul><li>competition </li></ul></ul></ul><ul><ul><ul><li>tends to raise price elasticities in the </li></ul></ul></ul><ul><ul><ul><li>long run </li></ul></ul></ul>Other Considerations
  20. 20. Percentage Size Gross Percentage Commission Order Gross Margin of Margin to Commission on Paid to Number on Each Order Order Company Gross Margin Salesperson 1 10 $1,000,000 $100,000 15 $15,000 2 20 $500,000 $100,000 15 $15,000 Comparing Gross Margin Commissions on Two Orders
  21. 21. Marketing Plan Discounted Price % Decline Selling Price $100 $92 Cost of Goods Sold 80 80 Gross Margin 20 12 GM% Commission 20% 20% $ Commission $ 4 $ 2.40 40% Contribution 16 12 Overhead Costs 10 10 Net Profit $ 6 $ 2 66% Gross Margin Commission Problems
  22. 22. <ul><li>Objective -- enough, but not too much. </li></ul><ul><li>Types of plans </li></ul><ul><ul><li>Unlimited </li></ul></ul><ul><ul><ul><li>Low supervision </li></ul></ul></ul><ul><ul><ul><li>easy to abuse </li></ul></ul></ul><ul><ul><li>Per diem </li></ul></ul><ul><ul><ul><li>controls costs but may restrict coverage </li></ul></ul></ul><ul><ul><ul><li>of distant accounts </li></ul></ul></ul><ul><ul><ul><li>needs constant adjusting </li></ul></ul></ul>Expense Accounts & Benefits
  23. 23. <ul><li>Types of plan (Cont’d.) </li></ul><ul><ul><li>Limited </li></ul></ul><ul><ul><ul><li>can lead to wasted time on </li></ul></ul></ul><ul><ul><ul><li> “ cheat sheets” </li></ul></ul></ul><ul><ul><ul><li>limits for each category </li></ul></ul></ul>Expense Accounts & Benefits
  24. 24. Hospital costs 90% Life insurance 77 Dental plan 69 Long-term disability 56 Pension plan 55 Short-term disability 49 Profit sharing 44 Thrift savings 22 Employees stock purchase plan 21 Percentage of Firms Offering Benefit Benefits Offered by Companies
  25. 25. Salary Commissions Incentive payments (bonus ) <ul><li>Motivate effort on non-selling activities </li></ul><ul><li>Adjust for differences in </li></ul><ul><li>territorial potential </li></ul><ul><li>Reward experience and competence </li></ul><ul><li>Motivate a high level of selling effort </li></ul><ul><li>Encourage sales success </li></ul><ul><li>Direct effort toward strategic </li></ul><ul><li>objectives </li></ul><ul><li>Provide additional rewards for top </li></ul><ul><li>performers </li></ul><ul><li>Encourage sales success </li></ul>COMP TYPES Source: Adapted from Sales Compensation Concepts and Trends (New York: Alexander Group, 2004). Compensation Methods - Recap BEST PERFOMANCE IMPACT
  26. 26. Sales contests Personal benefits <ul><li>Stimulate additional effort targeted at </li></ul><ul><li>specific short-term objectives </li></ul><ul><li>Satisfy salespeople’s security needs </li></ul><ul><li>Match competitive offers </li></ul>Source: Adapted from Sales Compensation Concepts and Trends (New York: Alexander Group, 2004). Compensation Methods - Recap COMP TYPES BEST PERFOMANCE IMPACT