Part V SALES FORCE LEADERSHIP

1. Part VSALES FORCE LEADERSHIP Chapter 12: Compensating Salespeople

2. Goals of a Sales ForceReward System • Acceptable ratio of costs to sales force output in volume, profit, or other objectives • Encourage activities consistent with firm’s overall, marketing, and sales force objectives and strategies • Attract and retain competent salespeople, thereby enhancing long-term customer relationships • Be clear and be flexible enough to allow adjustments that facilitate administration

3. The Customer-Product Matrix New Business Development Convergence Selling New CUSTOMERS Account Management Leverage Selling Current Current New PRODUCTS Figure 14-1: The Customer-Product Matrix

4. Compensating Salespeople

5. Aligning Pay With Strategy • Government Computer Sales, Inc.’s compensation plan ties a portion of reps' pay to the information they obtain from their clients. • Mandates reps to dig deeper and put GCS in the minds of the government agencies and educational institutions that use its products. • If a rep has $15,000 of available commission for the first ½ of the year the plan would work as follows: • 40% ($6,000) is tied to account management (i.e., customer information) • 60% ($9,000) is tied to a profit dollar quota • Reps who meet the documentation requirements receive all • $6,000; those who meet less than 85% do not receive the $6,000.

6. Use of Compensation Plans

7. Compensating Salespeople

8. Compensating Salespeople

9. Compensating Salespeople

10. Compensating Salespeople

11. Comparing Salary and Commission Plans Use of Compensation Plans 50,000 Straight Salary 40,000 Total cost per person (thousands $) 30,000 10% Commission 20,000 10,000 0 100 200 300 400 500 Sales Per Person in Thousands

12. Advantages of Frequent vs. Infrequent Incentive Payments

13. Customer Satisfaction and Compensation • IBM places significant resources toward monitoring customer satisfaction. • All customers are surveyed annually on: • Overall customer satisfaction • The rep’s knowledge of the customer • The transaction or solution itself • How satisfied the customer is with the solution • The installation process (smooth or disruptive), including how long it took • The extent and clarity of the education provided • The time needed to get the application(s) up and running • The capability and speed of technical support • Results are benchmarked against prior IBM performance, as well as the competition • Results are used for compensating sales reps and managers.

14. Gross MarginCommission Problem • Assume the following: • The salesperson makes 20% commission on the gross margin • It costs $80 to make the product. • Overhead is $10.

15. Gross MarginCommission Problem

16. Gross MarginCommission Problem

17. Research on Pricing and Profits

18. Base Salary Base Salary Base Salary Base Salary Base Salary Base Salary Base Salary Bonus + Commission Bonus + Commission Bonus + Commission Bonus + Commission Bonus + Commission Bonus + Commission Bonus + Commission Compensation Levels for Firms Using Salary Plus Incentives $161,500 $147,800 $119,600 $94,800 $71,000 Base Salary Bonus + Commission Base Salary Bonus + Commission Base Salary Bonus + Commission

19. Selecting Benefits • Salespeople expect cars • Insurance and travel are very common • Some plans offer a choice of alternatives