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Sample Sales Commission Plan

The prime intent of providing a commission component to a salaried sales compensation plan is to provide a performance incentive to the salesperson. The exact structure of any such commission program is best determined by the specific requirements of the employer.A basic plan might incorporate the following strategies:

• The starting point is to determine how much you wish to pay the salesperson, say $80,000 annually.

• Approximately three-quarters of this amount should be in the form of salary. In our example that amounts to $60,000 ($5,000 a month).
Through a commission plan the salesperson should be readily able to earn the balance of the $20,000 in that he/she is taking a risk by being compensated on commission.

• Next the current value of the salesperson's territory is calculated. For example, let's say that the territory currently generates $1,500,000 on an annualized basis.

• To determine the commission rate we divide the $20,000 by the $1,500,000.The resulting figure is .013 or 1.3 percent. That's his/her commission, paid monthly.

There are some other basic dos and don'ts:


• Pay the salesperson commission on all existing business that he/she inherits in this territory. You might want to embellish this program by adding a bonus percent for new accounts opened

• The sooner the salesperson receives his/her commission the more effective it is as a motivational tool. Pay a commission on each month's sales by the middle of the following month. Don't wait until the customer has paid your firm to pay the salesperson. If the customer doesn't pay then you can charge the salesperson back

• Should a salesperson leave the firm then pay him/her for orders received at least up to the end of that month

• Should a salesperson be transferred to a new territory, then consider granting that individual a hold on some half dozen of his/her existing customers for a designated period of time

• It is common practice to split commissions on orders that originate in one territory and are shipped into another territory

• If a salesperson closes a HUGH order pay the full commission. Remember that there are many times that the salesperson missed out on a large order

• Don't worry if the salesperson makes more money than the employer's President. The suggested compensation program above minimizes that risk, but a large commission payout represents a win-win situation for both the salesperson and the employer

 

Related articles:

Building a Sales Program

Closing Sales Techniques

Customer Development and Retention

New Product Launch Sales Plan

New Product - New Service Commercialization

Sales Management Compensation

For expert assistance with your sales and marketing, call Joe Rahal now at
617-999-7262

For assistance in implementing a sales commission plan please contact:

Joe Rahal, Rahal Consulting

Phone: 617-999-7262  
E-mail: jrahal@rahalconsulting.com

Contact me to discuss your problems, challenges, and needs.

Literature available for established companies in Northeast include:

  • SALESMARK background information
  • Copy of newly released booklet titled Energize Your Sales and Marketing Strategies to Accelerate Growth
  • Outline of any program described under "Typical Assignments"

 

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