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
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.
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
Building a Sales Program
Development and Retention
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Product - New Service Commercialization
For expert assistance with your sales and marketing,
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assistance in implementing a sales commission plan please contact:
Joe Rahal, Rahal Consulting
me to discuss your problems, challenges, and needs.
available for established companies in Northeast include:
of newly released booklet titled Energize Your Sales and Marketing Strategies
to Accelerate Growth
of any program described under "Typical