You Can Craft a Commission Plan to Make Reps and Managers Winners

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Contrary to what most people believe, commissions will never turn a poor salesperson into a good salesperson or a good salesperson into a great salesperson. They do, however, make great salespeople greater—if they believe they are being compensated fairly and if their commission rate is not decreased and, or their goal increased, arbitrarily. Those actions are counterproductive to your business success.

Consider these two examples from my 25 years as a buyer of tableware and gifts.

A well-respected salesman who called on me was a real professional at his job. His commissions kept getting larger because not only was the merchandise top rate, but also his knowledge was. When his commissions rose to where he was making more than many higher up in the organization, his managers raised the sales goals. The explanation was that the company had raised prices, so it was easier to reach the goal. While they did not lower his commissions, executives cut his territory. He resigned to be replaced by a rookie. Well, sure enough, the commissions went down. That happens when sales drop.



His customers loved him. My client hated him because he sold only at the lowest price.

One other vendor used the number of sales calls the salesperson made, along with the orders he sent in from the calls as the basis for his commission. It mattered not that between his calls, we sent in orders directly to the company. Sometimes we did not need anything when he was making his sales call, so he walked out without an order. On one trip, he asked if from then on, we would send orders to him directly and he would send them. Otherwise those orders were considered “house accounts,” and he did not get a commission on them. The problem for us was that his territory covered Oregon, Washington, Alaska, Idaho and Western Montana. He was on the road a lot, and some of our orders sat in his mailbox until he came home to wash his underwear.

One of the clients in my consulting business rated his salesman by determining if the sale was profitable. The salesman was given the “regular” price and then the “bottom” price. Between the two, the client determined how profitable the sale was. One problem with this policy was that the salesman believed both the “regular” and “bottom” prices were phony figures. Hence, he felt he could not win. It was easier to get the order when he cut his price to the bone. But it went further than that, as customers expected this on reorders and orders for other products: the two places where there was much more profit because there were no marketing expenses. His customers loved him. My client hated him because he sold only at the lowest price. My job was to put together a new pricing schedule that wouldn’t penalize the salesman but would make his boss happy.

My client used two other criteria for rating the sales staff. One was the expense vouchers they sent in. The other was a sort of demerit system, based on relaying “tooooo” many suggestions or complaints from customers. It was not too difficult to change the client’s attitude regarding the expense problem. Executives agreed to inaugurate a policy stating that the daily food bill would not exceed half the salesperson’s hotel bill. Historically, perhaps 5 percent of the expense vouchers would have been over the new limit.



The suggestion problem got solved at a trade show, when my client met a customer who was buying less. When my client asked the customer why, the customer said he was mad at the salesman because he never got a response to his suggestions and complaints. Whether that was because the salesman, believing the company considered it a black mark when he submitted suggestions and complaints, failed to submit them or because he submitted them and other departments failed to follow up, I do not know. What I do know is that we set up a format for salespeople to relay questions, suggestions and complaints to the office and, more importantly, for acknowledgment—and possibly more—to be sent to both the salespeople and the customers.

In a customer-concentric world, does the way you rate your sales staff get in the way of your reps doing what you want, desire and expect them to do?

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