Sales Compensation components  

Sales Compensation Management

Sales compensation is typically the largest part of cost of sales. A well managed sales compensation leads to well managed sales cost.

Sales Compensation components

This topic provides various compensation elements which are the building blocks to your overall sales compensation structure

Typical sales compensation components:

Salaries of sales staff

This is simple employee salary of sales staff

Variable Sales commission per unit of sales done.

This is sales commission for every sale you make. For example- 1% sales commission to every 100 dollars of sales done

Sales bonus for sales performance over a period of time

This is an add-on over and above the sales commission, to rewards higher volume of sales. For example- you may get 1% sales commission for every 100 dollars of sales done. Additionally, you may also get sales performance bonus o 0.25% of the sales done, if your total sales goes beyond 100000 US dollars within a quarter and another 0.1%, if it goes over half a million dollars in a year.

Sales incentives linked to specific sales campaign OR ramp-up

Sometimes to make the best of a sales campaign and associated investments (like advertizing and discounts..), sales people are given added incentives to achieve higher sale, during the campaign.

Sales ramp-up is typically associated with a new product OR new location. At the launch stage, one can incentivize accelerated sales volumes to build presence and take first mover advantage, OR build critical mass.

Sales incentives linked to specific sales behaviors beyond the sales revenue and productivity.

Some examples of these parameters are:

  • Sales velocity
  • Sales strike rate and leads conversion
  • Sales performance consistency
  • Smoothen the sales curve (For example- to avoid having 80%+ sales to be entered in last week of the month, and thereby overloading the sales order processing machinery).
  • Quality of sales
  • Ticket-Size of sales

One can design the sales compensation to promote these parameters. However, one has to be careful that generally, these parameters should be secondary to the main sales objective (maximum and profitable sales).

Other components for sales compensation:

Apart from commissions and incentives, there are some other 'disbursements' organizations give to their sales force like:

  • Conveyance
  • Training Allowance for attending the sales related training
  • Gifts
  • Free of cost business offsite and events.

All the compensation elements are equally applicable to different channels (direct sales as well as 3rd party distributors). Some compensation elements, which are specifically related to the indirect sales channel :

  • Retainer-ship fee: This is the minimum fixed compensation given to 3rd party distributor.
  • Promotion expenses: If the 3rd party distributor is spending money on promoting your product in terms of outdoor displays, local advertizing etc.