Transcript Compensating Salespeople - Southern Methodist University

Customer Satisfaction and Compensation
Professor Chip Besio
Sales Management
Marketing 3345
New
Convergence
selling
New business
development
Customers
Current
Account
management
Current
Leverage
selling
Products
The Customer-Product Matrix
New
Compensating Salespeople
Comp Type
Salary
Best Performance Impact
* Motivate effort on non-selling
activities
* Adjust for differences in territory
potential
* Reward experience and
competence
Commissions * Motivate a high level of selling
effort
* Encourage sales success
Compensating Salespeople
Comp Type
Incentive
Payments
(Bonus)
Sales
Contests
Best Performance Impact
* Direct effort toward strategic
objectives
* Provide additional rewards for
top performers
* Encourage sales success
* Stimulate additional effort
targeted at specific shortterm objectives
Compensating Salespeople
Comp Type
Personal
Benefits
Best Performance Impact
* Satisfy salespeople’s
security needs
* Match competitive offers
Use of Compensation Plans
Percentage of
Companies Using
Straight Salary
Straight Commission
Combination Plans (83%)
Salary Plus Bonus
Salary Plus Commission
Salary Plus Bonus Plus Commission
Commission Plus bonus
Total
17
19
24
20
18
1
100%
Source: Adapted from Sales Compensation Concepts and Trends (New York: Alexander Group,
2004).
Total cost per person
(thousands $)
Comparing Salary and Commission Plans
Straight
Salary
50,000
40,000
30,000
20,000
10,000
0
100
200
300
400
Sales Per Person in Thousands
Comparing Salary and Commission Plans for Field Sales Representatives
500
Customer Satisfaction and Compensation
 IBM places significant resources toward
monitoring customer satisfaction.
 All customers are surveyed annually on:
Overall customer satisfaction
The rep’s knowledge of the customer
The transaction or solution itself
How satisfied the customer is with the solution
The installation process (smooth or disruptive),
including how long it took
 The extent and clarity of the education provided
 The time needed to get the application(s) up and
running
 The capability and speed of technical support





Customer Satisfaction and Compensation
 Results are benchmarked against prior IBM
performance, as well as the competition
 Results are used for compensating sales reps
and managers.
Compensation Levels for Firms using
Salary Plus Incentives
Position
Salary
($000)
Top Sales Executive
National Account Manager
Regional Sales Manager
District Sales Manager
Key Account Rep
Senior Sales Rep
Intermediate Rep
Entry Level Rep
$91.0
72.2
74.5
64.5
57.4
47.5
36.1
29.7
Incentive
($000)
$29.0
26.0
21.9
20.3
22.9
26.0
15.3
13.4
Sales & Marketing Management Compensation Survey, 2012
Total
Compensation
($000)
$120.0
98.2
96.4
84.8
80.3
73.5
51.4
43.1
Compensation Levels by
Account Relationships, 2012
•ENTERPRISE RELATIONSHIPS
$121,800
•Customer solution more important than price; team selling approach
$64,400
$43,300
•CONSULTATIVE RELATIONSHIPS
$97,100
•Creates new value; tailors product to customer needs
$62,700
$42,300
•TRANSACTIONAL RELATIONSHIPS
•Sells on price; product is a commodity
$52,500
$36,700
$83,300
Top-Level
Mid-Level
Entry-Level
Selecting Benefits
 Salespeople expect cars or
allowances
 Insurance and travel are very
common
 Some plans offer a choice of
alternatives
Compensation Methods
A. Straight Salary






Control wage levels
easier to control rep’s activities
increases loyalty to firm
fails to provide incentives
high costs when sales are low
most common in complex
business selling
Compensation Methods
B. Straight Commission
 maximum incentive
 all variable cost
 low costs when
sales/salesperson
is low
Compensation Methods
B. Straight Commission




hard to control reps
low loyalty
pay low when business is weak
used in small firms, door-to-door,
retail sales, insurance, stock
brokerage, printing
Compensation Methods
C. Combination Plans
 Most common today
1. Salary + Commission
 base for non-selling activities
 commission for incentive to push complex
industrial accounts
Compensation Methods
C. Combination Plans
 Most common today
2. Salary + Bonus
 base for non-selling activities
 bonus to reward completion of special
tasks in consumer products selling
3. Salary + Commission + Bonus
 rewards every activity, BUT costly to
administer
Other Considerations
 Trend toward TEAM selling
 difficult to reward team members for
group effort
 usually emphasize shared commissions /
bonuses
Other Considerations
 Profit-based Commissions
 Gross margin commissions
 Salesperson & firm attempt to
maximize same $$
 raise wages for salespeople often at
expense of company profits
 tends to increase industry price
competition
 tends to raise price elasticities in the
long run
Comparing Gross Margin
Commissions on Two Orders
Order
Number
1
2
Percentage
Gross Margin
on Each Order
10
20
Size
of
Order
Gross
Margin to
Company
$1,000,000 $100,000
$500,000 $100,000
Percentage
Commission on
Gross Margin
15
15
Commission
Paid to
Salesperson
$15,000
$15,000
Gross Margin Commission Problems
%
Marketing Discounted
Decline
Plan
Price
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%
Expense Accounts & Benefits
Objective -- enough, but not too much.
 Types of plans
 Unlimited
 Low supervision
 easy to abuse
 Per diem
 controls costs but may restrict coverage
of distant accounts
 needs constant adjusting
Expense Accounts & Benefits
 Types of plan (Cont’d.)
 Limited
 can lead to wasted time on
“cheat sheets”
 limits for each category
Benefits Offered by Companies
Benefit
Hospital costs
Life insurance
Dental plan
Long-term disability
Pension plan
Short-term disability
Profit sharing
Thrift savings
Employees stock purchase plan
Percentage of
Firms Offering
90%
77
69
56
55
49
44
22
21