Sales management

1. Presentation on topic :- methods of sales force
compensation
Presented by :- Sangeeta Saini
M.Com (final)
671

2. Meaning of compensating sales force
Compensating sales
force means giving
monetary and non
monetary benefits
in return for the
services rendered
by sales force.
The basic sales force compensation elements are salary ,
commission , bonus, fringe benefits or any combination of
these.

3. Components of compensation plan
Fixed
component
It provides stable income to the
sales force. It is in the form of
salary.
Variable
component
It has a motivational role and it is
linked with job performance of the
sales force. It is given in the form of
commission.

4. Definition of compensating sales force
“ A sound sales compensation
plan must have three
elements:
Attract skilled and well-
motivated sales personnel
towards organisation.
Motivate sales persons.
Retain efficient sales
persons in the organisation.”
According to Phillip Kotler

5. Methods of sales force compensation
1. Straight salary method :-
This is simplest compensation plan in
which salesman receive fixed salary at
regular interval of time . Generally , salary
is paid to sales force according to salary
grade approved at the time of
appointment .
Under this grade , generally sales force continue to get annual increments
and are paid other allowances like dearness allowance ,meals allowance,
travelling allowance , medical allowance.

6. Straight salary method
Merits
 Provides maximum security
and stability of earnings to
the salesman.
 Easy to understand and it
involves less calculations.
 Salesmen and management
know about the amount of
salary in advance so both
can plan their financial
activities for future easily.
Demerits
 This method provides no
incentives to sales
personnel. It lacks
motivational effects.
 It does not distinguish
between efficient and
inefficient salesman as both
get fixed salary.
 In this compensation plan,
close supervision of sales
force is required.

7. In this remuneration plan , sales force is paid
according to their performance, efficiency and
productivity.
This plan pay fixed or floating rate of commission
on the sales volume achieved by the salesman.
Commission can be paid on the basis of
sales volume, sales value ,profits
,collections , order size etc. If sales level
achieved by a salesman is high , then he
will paid more commission ; and if sales
level achieved is low , then he will be paid

8. Commission at fixed rate
• This method is known as straight commission method, commission
percentage is fixed. The same rate of commission is used at all level of
sales ,whether actual sale are below the sales quota or above the
sales quota.
Commission at progressive rates
• In this method, rates of commission vary with the level of sales . The rate of the
commission increases with the increase in sales level and decrease with
decrease with sales level.
• For example :- a salesman may be paid 6% commission on sales upto rs. 60,000
, 7% commission on sales from rs. 60,000 to rs. 1,20,000 and 8% on sales above
rs. 1,20,000.
Differential commission plan
• Under such plan, different rates of commission are fixed for
different products of the company. Commission at higher rate
is given for selling products with the high profit margin and
vice versa.
Commission method

9. Commission method
Merits
 Compensation is linked with
productivity and efficiency ,
hence it is motivational in
nature.
 It requires less supervision
of sales force.
 Efficient salesmen are
attracted to such sales
organisation.
demerits
 There is no secured income
to salesman.
 From the various basis for
computing commission such
as sales volume , sales value
, net profits etc. , it is
difficult to decide the basis
for calculating commission.

10. 3. Salary plus commission method
Some firms combine salary and commission plans . This plan is
designed to avail the advantages and remove the disadvantages of
both salary plan and commission plan. Salary plus commission
method may take any of the following two forms:-
Salary + commission on total sales
In this method , the commission is
paid on total sales affected by the
salesmen.
Salary +commission on sales over and above
the quota
In this , a minimum quota is fixed for
each salesmen. No commission is
paid until the salesmen crosses this
sales quota. So the salesmen will be
entitled to commission only on sales
over and above sales quota fixed for
him.

11. 4.
Bonus is an additional financial reward
to the sales force for achieving results
beyond a predetermined level. Bonus
plan can be attached either with salary
and commission plans.
It is paid in addition to normal
remuneration as a reward for better
performance . Bonus is never used
alone . Bonus is not a continuing liability
to the mgt. It is given for achieving sales
quota, performing extra selling
activities, for reducing selling expenses,
for attracting new customers, selling
particular products above a specific
level etc.

12. Merits Demerits

13. 5.
Fringe benefits include retirement benefits,
pension plans, paid leave, study leave,
maternity leave, car facility, medical facilities,
etc. Fringe benefits are given to all employees
working at the same level, and these do not
vary with their job performance.
Fringe benefits helps to increase job
satisfaction, and prevent job dissatisfaction .

14. Types of fringe benefits
Statutory Payments:
It refers to compulsory
payment under central
or state government
laws such as provident
fund, pension-plans etc.
Labour welfare schemes:
It includes group insurance ,
reimbursement of medical
expenses, facility of free
transportation , free education
to children, canteen facilities
etc.
Benefits related to leave:
Like study leave ,
maternity leave , other
leave etc.
Other benefits :
Like free club
membership, gift on
various occasions ,
providing mobile phones
, laptop etc.

15. Under this method, if some
additional task is assigned to sales
persons which is different from his
routine task, then some additional
remuneration is given to sales
persons as they feel honoured
when the assigns them some
additional task. They feel that
company has recognized their skills
and thus given them additional
task.
6. Additional Task Method:

16. At the end, we can conclude that no single method
of compensating salesman is suitable for all
organisations. The suitability of method varies
from business to business . It is a common belief
that salary plus commission method is best of all
other methods. It guarantees minimum
remuneration along with incentives for higher
efficiency. It has benefits of both salary and
commission method. Hence salary + commission
method is the best of all the methods.