2015

Management of

Sales Force Chapter ( 9 )

Prepared By

Omar Kotta

01116911852

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Omar Kotta Page 1

Sales Force Compensation

Compensation is the most widely used method of motivating a sales force , it can be financial or non-financial.

Financial compensation

I. Direct payment of money.

II. Indirect payment (i.e. paid vacations, or company financed insurance program)

Non-financial compensation

I. Opportunity to advance in the job. (Promotion)

II. Recognition inside and outside the firm.

III. Enjoyment of the job.

Objectives of good compensation plan

A) From the company’s point of view: 1) To motivate salespeople: To reach & exceed their goals. 2) To correlate efforts & results with rewards: in most cases rewards are given for

results, the person can work very hard but get few results. SO It’s hard to equate efforts with results. (Asked enta btkon k shrka ht3ml rewarding le nas 3ala asas el outputs bt3thom, fe hena kan be7sl conflict w msh be3rfo ywf2o ben enk momken t3ml efforts kter bs lel asf mfesh outputs w de ktera fe sales 7a2a2a)

3) To control salesperson’s activities: A good pay plan should act as an unseen supervisor of sales force.

Compensation plan should offer incentives flexible enough to cover various tasks. EX) Controlling selling expenses )zai el nas ely htsht8l over time , missionary work,

law 3mlt increasing le sales ma kol de activities) 4) To ensure proper treatment of customers: To provide customer satisfaction. 5) To attract & keep competent salespeople: In order to attract high-caliber reps to

company & help to keep the desirable ones. (El shrka ely btkf2 el nas bto3ha w madl3hom :D htkon attractive le nas kter enhom ykon part mnha)

6) To be economical yet competitive : a compensation plan should be economical keep their sales force expenses in line with competitors (lazm ab2a k shrka 3arfen kol dollor bdf3o hsrfo fe a w ha5sr wala la , w he3od 3lya be a ama asrf)

7) To be flexible & stable: to meet the needs of territories, products, salespeople. It should be stable to enable the company to meet changing conditions without

changing the basic plan. (msh kol el products bt3t el shrka btba3 besro3a fe 7agat sahla tetba3 w fe products

bt7tg creative selling , for sure el nas ely btkon fe new territories el b3eda hekono 3ayzen mokf2t aktr w expenses w key account nsbto btt8er 3n reps w kda fe lazm ykon feh flexibility , W Tb3n stable 3ashan el zarof btt8er mn w2t le tni fe msh kol shwya he9er)

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B) From the salesperson point of view: 1) A secure income & an incentive income: Any plan should provide regular income

such that reps don’t need to worry about their living expenses. It should also provide incentives because most of the people do better when they are

rewarded for specific action. (htsht8l aktr w a7sn tol ma feh mokf2at lek) 2) Simplicity: A plan should be simple to be easily understood from salespeople but

maybe it’s not flexible enough. So, flexibility & simplicity are conflicting goals.

3) Fairness: a good plan should treat the salespeople equally & should depend on measurable factors that are controllable by the sales force.

4) Choice: Reps should have choices for how they will be compensated. (nas bt7b flos –nas bt7b paid vacation , safr , benefits . It depends 3ala sh5s )

Considerations regarding the designing of compensation plan:

1) There are clear conflicts in the objectives of most compensation plans: sales executives want a plan that maximize the sales reps΄ income and at the same time minimize the company΄s outlay. (3ayz yde mokf2at w ye control expenses!)

Or they want one plan to give the sales force security and stability of income as well as incentive.

2) No single plan fits all situations: many companies need more than one compensation plan because of differences in types of sales jobs, territories or products. (3ndy categories kter mn sales jobs , kol type m7tag plan law7do)

3) Management should solicit suggestions from the sales force regarding the compensation plan. It is important to get input from salespeople because they are more likely to accept a plan if they were consulted about it during its design. (El administration yfodl enha ttlob eqtr7at mn sales team, lazm a3rf el nas bekono mtwq3en kam, w ashof a2dr anfz el 7agat de azai)

Steps for designing compensation plan:

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1) Review job description: This should include the nature, scope of the job and difficulty of each job.

2) Identify specific objectives of the plan: Compensation should be based on factors that salespeople can control, Identify what it is intended to accomplish. (Increase profits by 10%, increase sales

volume of a certain class of products by 10%)

The company can measure Sales, selling expenses, calls made, gross margin

contributed are easily measured.

3) Establish the level of compensation: (v.imp) a. People are more interested in how much they earned rather than how. b. For company: The level of income is the direct sales cost. c. For management: Compensation level is what attracts most reps. d. For reps: They should earn enough to be attracted to the job.

Level of pay: The average earnings of the salespeople over a given period of time. a. It varies according to the industry. b. The experience of the sales rep.

4) Developing the method of compensation: Whether salary, bonus, or commissions

Basic types of compensation plans

P.O.C Straight salary plan Straight commission Bonus

Definition Is a direct monetary reward paid for performing certain duties over a period of time? (fixed) (mortbk el sabet ely bt5do kol a5er shar , b3et b2a msh b3et , de 7aga asasya btkon 3arf enk ht5doha)

IS a variable element related to the performance of a specific unit of work. It consists of: a. A base in which performance is measured. b. A rate in which the amount is paid for each unit of accomplishment Ex. If a company paid one dollar in commission for each 100 dollars of sales, the rate is 1% c. A starting point for the commission payments.

It is the lump sum payment for an above normal performance . It can’t be used alone. ( bt5od zaydat , w mokf2at aktr 3ashan El outputs bt3tk 3lya fe el shrka )

Advantages 1.Provides security and stability for reps 2.Better for directing and controlling sales activities 3.Ensures proper treatment of customers

1.Provides a strong incentive 2.Sales people have more freedom

1.Added incentive 2.Can be used for specific activities 3.flexible

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Disadvantages 1.Direct incentive is easily lost if not administered properly 2.Represents a fixed cost 3.Requires supervision to direct, control, and evaluate

1.Difficult to direct and supervise sales people 2.Customers’ best interests may be ignored (hamk tbe3 bs 3ashan t5od 3omla aktr) 3.Sales people’s earnings may fluctuate widely

1.Added cost 2.May be seen as inequitable if not administered properly (b3d reps htshofha be el 7ob – aw zolm law msh 3amlet control)

Best used 1.For products that require a lot of presale and/or post-sale service 2.For building long-term customer relationships 3.When supervision is available for new recruits 4.For new territories 5.For missionary sales

1.When a strong incentive is needed to attain sales 2.For products that require little presale and/or post-sale service 3.The sale is a one-time sale 4.Company is in a weak financial position 5.Company uses part-time or independent sales people

To encourage above-normal performance of specific activities

Commission Rates:

1. Progressive rate: Increases when the volume increases. It requires administration to prevent reps from taking advantage of the system, such

that reps may postdate or predate orders so all fall in one period. E.g. Pay 5% on sales up to $20,000; 7% on the next $80,000, 10% on above $100,000.

2. Regressive rate: Decreases when the volume increases. It’s hard to get the first order but reorders come frequently & automatically. E.g. Pay 7% on the first $20,000, 5% on the next $40,000 & 4% on the next $50,000.

Combination plans:

The purpose is to overcome the weakness of a single method at the same time keeping its strong points.

a. Salary plus commission: Used for providing the advantages of a salary plus the incentive & flexibility features

of a commission. It may reduce the managerial control over the sales force, so it should depends largely

on the balance between the elements. b. Salary plus bonus: Used for the company that wants to control its sales force. It’s an excellent way for encouraging specific activity in a short time. It helps sales force on achieving the long-term corporate objectives. c. Salary plus commission & bonus: ( LOKSHA wa7da :D ) Used for having a certain degree of control Providing an incentive as well as offering a bonus for the accomplishment of a specific

goal.

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Linking methods to objectives: (Imp fe T/F)

1) Increasing profits by 10%: Needs incentives as commission or bonus. 2) Increasing sales volume of certain class: Commission is used. 3) Increasing volume at existing accounts: Bonus or higher commissions should be paid. 4) Improving customer satisfaction: Bonus & increase in salary is the best way. 5) Stimulating missionary work: Bonus is given based on the individual efforts. 6) Developing a new territory: Salary should be used.

Split commission: When two or more salespeople work together on a sale, provision

must be made to split any commission or other credit given. (m3k sales engineer – w sales rep w 7ad technical , el commission bttwz3 3ala team)

Limits on earnings: The reasons for having no ceilings or limitations on sales earnings is that the more a sales rep earns, the more the company makes, particularly if the earnings are in the form of a bonus or commission.

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5) Decide on indirect monetary benefits: Are items that have the same effect as money,

non-financial compensation as: promotions, honors, recognitions, etc. 6) Pretest the plan & install:

a. Pretest the plan: Management can estimate the company’s costs & income to allow adjustment in the plan before installing it.

b. Introduce the plan to the sales force: Reps should be asked for suggestions & criticisms concerning the plan.

c. Install the plan & evaluate it periodically: To prevent it from being outmoded

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Practical

Example (1): Dr.Amira Given that: Sales rep A: Actual sales: 20,000, salary 1,000/month commission 1% for the 1st 25,000 and 2% more from 25,000 up to 27,000 3% for more Sales rep B: Actual sales: 25,000, salary 1,000/month commission 1% for the 1st 25,000 and 2% more from 25,000 up to 27,000 3% for more Sales rep C: Actual sales: 30,000 salary 1,000/month commission 1% for the 1st 25,000 and 2% more from 25,000 up to 27,000 3% for more Bonus LE 500 for all sales reps. Required: 1. Calculate monthly income for A B and C 2. State the type of commission rate: regressive, progressive or constant

Solution:

1. Rep A Rep B Rep C

Salary 1000 1000 1000

Commission: 1% on the 1st LE 25000 sales 2% for more than 25000 up to 27000 3% for more

Zero Zero Zero

(1%x25000)=250 Zero zero

(1%x25000)=250 (2%x2000)=40 (3%x3000)=90

Bonus 500 500 500

Total monthly income 1500 1750 1880

2. It is (actual sales) based commission, with progressive commission rate.

End of the chapter

Always remember

خلي السعي عاده