This method is a little better than the previous one from the incentive point of view. But sales executives tend to be impatient people, and they are not usually prepared to wait for a year or so before knowing whether they are going to get a bonus. Therefore the advantage is slight. Also, too many intangible factors affect the bonus payments and many of them are not controlled by the salespeople. While the sales force in the field may have done extremely well, the orders may be fouled up by a strike in the factory or an extra large payment may be made to a departing chairman, depleting profits; such happenings could cause justifiable dissatisfaction among the sales force.
Commission Only
This can create insecurity, especially with new recruits. If they have family responsibilities, and cannot obtain orders quickly enough, it can create dishonesty, which does not do either party any good in the end. If a company with a wide range of products pays its sales force on a commission only basis, the sales executive will only sell what they wish to sell and are good at selling. Those products may not be the ones the company wants pushed. A salesperson doing well on a commission only basis can still feel insecure. If the performance is too good, the company may decide to take on someone else, thus effectively reducing their territory and their earnings. This naturally has a dampening effect on their selling capacity. A company cannot effectively control and direct the effort of a sales force paid on a commission-only basis except by harsh measures, which may be undesirable.
Low Rate of Commission Plus A ‘Liveable’ Basic Salary: This method is the most widely used in industrial selling. This is quite satisfactory for a one product or one product range company, but problems appear when the company expands or increases the sales force. The sales executives are not interested in establishing new lines or in the expansion of the company’s activities.
Continuous Incentive Bonus Scheme: The total remuneration should be made up of a livable salary and a bonus, in a predetermined ratio, say 80 : 20. The company must have a master plan with its aims and expectations clearly defined. At the beginning of every financial year, the company should set out, in the form of an overall company sales target:
- The total sales target for the next twelve months;
- The target for each salesperson in that achievement;
- The share of the total sales target to be borne by each product range, particularly if a multiplicity of products is to be sold.
It is one of the functions of senior management to determine the target proportions carried by each product range and it is one of the sales executive’s major functions to attain those objectives. It is vital that the sales force sell the product range that makes the highest gross contribution to the company profit. Others may be easier to sell, so incentives should be tied to selling those lines which enhance the bottom line of the business and maximize the return on capital employed, which is the true measure of the company’s success. The continuous incentive bonus scheme is designed to inform the salesperson exactly what is required of them in the year ahead and what their rewards will be if the objectives set are attained. This ensures that the goods are sold according to the overall company targets and in the right product range proportions.
