Designing a Sales Compensation Plan
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Designing the sales compensation plan must be performed with great care as it plays a great role in determining the retention of sales personnel who are capable of deciding the direction of the company’s wealth inflow. Recognition of the role played by the sales personnel in the company’s profit generation is the foremost step in defining the remuneration policy. The work involved, competitive factors, motivating elements, etc must be identified and included while structuring the remuneration policy.

Identifying the company objectives, both long term and short term, and the alignment of the remuneration for ensuring its smooth attainment is one of the first steps involved. The goals might vary from exploring new markets, widening the current demand, introduction of a new product, or exploring new territories. The work and the challenges involved must be considered in the fabrication of the sales compensation plan.

Once the company objectives have been set, the next process involves setting aside the budget for the payment of the remuneration. The revenue from sales must cover the cost of sales, the profit margin and the remuneration package. As the sales are directly linked to the company profitability, care should be taken to ensure that the pay is capable of propelling the sales personnel forward to put in better efforts.

Once the budget has been set, the management has to differentiate between the various roles played by the personnel. Gerd Neumann of GN Consulting LLC has differentiated the sales personnel into ‘hunters’ and ‘farmers’. Hunters explore the new markets and move with the intention of identifying and introducing their product to a new customer fighting against competition. They explore the unknown and meet the customer head on with the idea or product they wish to sell. ‘Farmers’, on the other hand, try to reap the maximum returns from an already explored market. They take up the task of maintaining a long term relationship with the customer. According to Neumann, ‘hunters’ are the bottom-line sales person while ‘farmers’ makes good social sales personnel. A mix of the hunter and farmer, named as the knowledgeable salesman, uses his extensive knowledge to identify and retain the market. The task and the challenges in the role played by the sales personnel must therefore be a determinant of the sales remuneration taking into account the risk and effort involved.

Once the role to be played has been set, the management has to evaluate the effectiveness of the existing remuneration system. The compensation might constitute of basic pay, commission and bonus. The remuneration must be in line with the competitive rates to ensure employee retention. As labour turnover in the sales personnel has more impact in the company’s revenue generation on account of the direct contact with the end customer pains should be taken to keep them at a minimum level. Changes in the remuneration policy must be aligned with the changes in the market.

Once decided, the sales remuneration policy must be well documented and communicated to each personnel. Automating the remuneration system can help in pulling down the chances of errors in computation. It also helps in having real time knowledge about the income due to the employee.

Designing the remuneration is not a one-time job. It has to evaluated and modified on a continuous basis to make it effective and productive.

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