A sales compensation plan is no panacea for marketing ills, but it is often possible to construct a plan that increases marketing effectiveness. If a company’s earnings are depressed because sales personnel overemphasize low-margin items and neglect more profitable products, it may be possible, despite the existence of other managerial alternatives, the adjust the compensation plan to stimulate the selling of better balanced orders. Specifically, variable commission rates might be set on different products, with the higher rates applying to neglected products.
Or, as another example, a firm might have a “small-order” problem. It is possible to design compensation plans that encourage sales personnel to write larger orders. Commission rates can be graduated so that higher rates apply to larger orders. However, it is desirable to supplement such a revised compensation plan with a customer classification and call scheduling system, enabling management to vary call frequency with account size.
As still another example, a company may want to obtain more displays or local advertising by retailers. The presence or absence of point-of-purchase displays can spell the difference between marketing success or failure. Securing retail displays is a task that sales personnel may neglect, especially if they are paid commissions based on sales volume. To overcome this tendency, an incentive payment for obtaining retail displays is often incorporated in the compensation plan. Numerous other possibilities exist for using the compensation plan to help solve special company problems. Plans may assist in securing new customers and new business. Repeated tampering with the sales compensation plan frequently results in complex and difficult-to-administer plans
Consult the Present Sales Force
Management should consult the present sales personnel, inasmuch as many grievances have roots in the compensation plan. Management should encourage sales personnel to articulate their likes and dislikes about the current plan and to suggest changes in it. Criticisms and suggestions are appraised relative to the plan pr plans under consideration. But at this point, management compares the caliber of the present sales force with that of the people whom it would like to have. If the present salespeople are not of the grade that the company wishes to attract, their criticisms and suggestions are of limited usefulness. Since, however, nearly every sales force has some people of the desired caliber, more weight can be attached to their opinions than to those of others.
Reduce Tentative Plan to Writing and Pretest it: For clarification and to eliminate inconsistencies the tentative plan is put in writing. Then it is pretested. The amount of testing required depends upon how much the new plan’ differs from the one in use. The greater the difference, the more thorough is the testing. Pretests of compensation plans are almost always mathematical and usually computerized. Past payrolls, perhaps for a year or two, are reworked to check operation of the proposed plan against experience under the old system. Analysts compare what happened with what would have happened had the new plan been in effect. If the sales pattern has shown considerable fluctuation, calculations are made for period’s representative of average, good, and poor business.
Then a look is taken into the future utilizing sales forecast data, new and old plan’) are applied to future periods. The plan is tested for the sales force as a group and _or individuals faced with unique selling conditions. Analysis reveals whether the plan permits earning in line with the desired compensation level. If deficiencies show up, the plan may not be at fault; weaknesses can trace to the way territorial assignments have been made or to inaccuracies in sales forecasts, budgets, or quotas. To conduct a pilot test, several territories representative of different sets of selling conditions are selected. The ‘proposed plan is applied in each one long enough to detect how it works under current conditions. Pilot tests are invaluable for ‘spotting possible sources of trouble and other deviancies.
Revise the Plan The plan: is then revised to eliminate trouble spots or deficiencies. If alterations are extensive, the revised plan goes through further pretests and perhaps another pilot test. But if changes have been only minor, further testing is not necessary.
Implement the Plan and Provide for Follow-up
At the time the new plan is implemented, it is explained to sales personnel. Management should convince them of its basic fairness and logic. The sales personnel are made to understand what management hopes to accomplish through the new plan and how this is to be done. Details of changes from the old plan, and their significance require explanation. All sales personnel should receive copies of the new plan, together with written examples of the method used for calculating earnings. If the plan is at all complex, special training sessions are held and aimed at teaching sales personnel how to compute their own earnings. If sales personnel do not understand the plan or certain of its features, such as quotas and variable commission bases, they may think that the company is taking unfair advantage of them. Inadequate understanding of the sales compensation plan is common and often a cause of low morale. No effort is spared to make certain that everyone on the sales force fully comprehends the compensation plan and its workings.
Provisions for follow-up are made. From periodic checkups, need for a further adjustment is detected. Periodic checks provide evidence of the plan’s accomplishments, and they uncover weaknesses needing correction.
