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Sales & Sales Management/Sales commissions

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Question
Hello!

My wife and I are about to launch our Gluten-Free prepared frozen food line.  Our target customers are better natural food stores, as well as Whole Foods, Inc. Stores.  We do not have the capital to pay sales salaries and wanted to know your opinion on how to find SERIOUS sales people who will work on straight commission to start, how to structure the commissions, what the % should be, and how to scale percentage towards maintaining motivation and interest.  Also, The last thing we want to do is put the wrong person out there repping us, and souring our name in this very small industry.

In conclusion, our main question is the proper percentage for commission-only, then, your views on how to hire, then setting up a territory plan.  THANKS

Answer
FIRST  ----DEFINE  YOUR  MARKET  POTENTIAL
FOR  THE  GEOGRAPHICAL   TERRITORY
1.BUSINESS PRODUCT I SERVICE
what are your products/service [describe]
how will you deliver it [with staff or on your own]
what will be the fee structure per head per service
what will be your fixed overheads [ electricity/ water/ etc]
what will be your variable overheads [ stationery etc
what will be the quality of your service
will there be unique offers, which no one else offers

2.BUSINESS  CONTEXT
WHAT is happening in your industry
 is it growing or is there demand or is it stagnant?
how fast it is growing?
 what kind  of services are being offered?
 what prices are being charged
what is the quality of the service
what is the capacity I is it in excess of the demand. etc

3.BUSINESS ENVIRONMENT
who are the potential competitors
what is the degree of competition
what is the basis of competition ~price/ quality /facilities etc
 how easy is it to enter the competition
 what are the barriers for entry
how do they market their service  detail please etc etc

4.BUSINESS MARKET
WHO are your potential customers
what is the purchasing behavior of the customers (good service /quality/speedy etc]
what factors affect the buying  behavior of the customers
what are the preferences of the target market
is there a seasonal trend [season / lean periods/ high demand period etc]
what isthe demographic trends [gender/ age/ profession/ etc]
what services are in demand in the market

etc etc





5.GOVERNMENT   BUSINESS REGULATIONS
-What  regulations  affect  this   business  --creditation /location/ qualifications etc


6.BUSINESS –SALES
 what opportunities do you see for your business
 please define quantitatively and qualitatively
 what are your targets
what is your sales objectives[ forecast for 3 years at least]
–sales forecast by units/dollars [for three years]
 what factors are likely to affect your sales objectives
 sales minus cost of sales= gross contribution[ rough estimate]


BASED  ON  THE  ABOVE  THE  ANALYSIS
WHAT  IS  THE  TOTAL  MARKET   POTENTIAL  FOR   YOUR  TERRITORY
WHAT  ARE  YOU  TARGETING  FOR  
YEAR 1--SALES
YEAR 2—SALES
YEAR 3—SALES
===============================
SALES  PLANNING  SYSTEM

1.REVIEW  THE  LAST 12  SALES  PERFORMANCE.
-Sales  review
-Customers  Sales review
-Market review
-Sales Policies  review
-Products Performance reveiw
-Distribution  review
-Customer review
-Reseller [ trade review ]
-Sales  Organization review
-Territories Sales review
-Sales Force review
-Sales  management review
-Sales  Promotions  review
-Sales  support review
-Sales  training  review
-Competition review
-Pricing  review
=============================================================
2.Based  on the  analysis /  review, you develop the  sales  plan
for  the  next 12  months.
1.Your Company  Mission Statement.
2.Your  Products/ Service  
3.Total Market  size  potential [ how big in the next 12 months]
4.Your  company  marketing  Objectives.
5.Your  market  share  forecast.
6.Your  sales  forecast.
7.Your  Competitive  positioning
8.Which  are  your  market segments, you  are going  to focus.
9.Your  sales  organization-structure / positions/ process.
10.Your  major  customers [ current / new  prospects ]
11.Your sales  targets by  customers / territories.
12.Target Market(s)
What categories of buyers will you target? For example: banks,
 Why? Where are those customers located?
13.What Motivates Those Buyers
Describe the product or service in terms of the benefits it provides the
customer. Why should they buy your product or service? Buyers are
motivated by benefits (e.g., convenience, status, time savings,
cost reduction, etc.), not products and services.
14. Matching  Competitors
Don’t assume that your products and services are so superior that you can
discount the competition. An honest assessment of your primary competitors’
strengths and weaknesses make your business plan more credible.
Describe your competition from the customer’s perspective. What strengths
does the competition have in the eyes of the marketplace?
How will your business compete effectively?
15. What is  positioning strategy
    1.  Price—Base it on how much the market is willing to pay for the product
1   or service, not on how much it costs the business to manufacture and sell it.
2   Management style—Fast and aggressive or slower and cautious?
3   Product quality—High-priced, high-quality for a niche market or low-priced,
4   adequate-quality that can capture a large market share?
16.Trends
What industry trends could affect your business? Economic trends? Cultural trends?
How  do  you  plan  to  manage  these  factors.

17.Obstacles and Opportunities
What might get in the your way? If possible, present these obstacles as opportunities
instead of problems. How will the business address them?

18.Selling Methods
How will your potential customers learn about your product?
If you plan to use your own sales force, how many salespeople will you need
to meet your goals? How many sales calls do you estimate that it will take to
make a sale? How large will the average order be?
How will you keep your sales costs down? Many businesses have moved away
from a traditional in-house sales force and have become increasingly reliant
on direct mail, telemarketing, and seminars to sell products and services.
19.Supporting the Sales Force
What training will the sales force need? How will that training be addressed?
What materials (e.g., brochures, selling aids, prototypes) will the sales force need?
What incentives will you offer the sales force? These incentives must be
structured properly and explained clearly in order to be effective.
20.Product Promotion
How will you promote your product? Through advertising? Public relations? The press?
#############################################################




Building a Winning Sales Plan in 10 Steps
1.   Summarize Your Objectives
2.   Identify the Strategic Objectives
3.   Assess Prior Sales Performance
4.   Segment Your Customers
5.   Set This Year's Objectives
6.   Develop Territories Action Plans
7.   Develop Key Accounts Plans
8.   Measure and Monitoring Results
9.   Establish your Annual Sales Planning Cycle
10.   Write the Executive Summary
________________________________________

@@@@@@@@@@@@@@@@@@@@@@@@@
RECRUITMENT  AND  SELECTION  PROCESS
-----------------------------------------------------------------------------------
PROCESS   ELEMENTS        
---------------------------------------------!------------!----------------------
STEP  1

PREPARING  JOB ANALYSES
PREPARING JOB  DESC          
----------------------------------------------------------------------------------
STEP  2

PREPARING JOB SPECS          
-----------------------------------------------------------------------------------
STEP  3

DECIDING TERMS AND          
CONDITIONS OF EMPLOYMENT
[ MEETS  ALL GOVERNMENT  REGULATION  ON EMPLOYMENT CONDITIONS]

------------------------------------------------------------------------------------
STEP  4

ADVERTISING          
[COPY/MEDIA PLAN]          [ MUST REFLECT TRUTH, NO  FALSE  INFORMATION,
 NO  GENDER  BIAS, NO DISCRIMINATION,NO AGE BAR, ETC]

---------------------------------------------------------------------------------------------------------------------------------------
STEP 5

         
EXTERNAL APPLICANT          
ONLINE APPLICANT          
--------------------------------------------------------------------------------------------------------------------------------------
STEP  6

SIFTING APPLICATIONS          
-----------------------------------------------------------------------------------------------------------
STEP  7

PERSONAL INTERVIEW
-INDIVIDUAL PER TO PER          
-----------------------------------------------------------------------------------------------
STEP  8

-PANEL INTERVIEW          
-------------------------------------------------------------------------------------------------------          
STEP  9

-SELECTION BOARD          
-------------------------------------------------------------------------------------------------------
STEP  10

TESTING [ BEHAVIORAL]
-PSYCHOLOGICAL     procedural element for all positions except senior position          
-PERSONALITY          procedural element for all positions except senior position          
-ABILITY          procedural element for all positions  except senior position          
-APTITUDE          procedural element for all positions except senior position          
-PSYCHOMETRIC          procedural element for all positions          
------------------------------------------------------------------------------------------------------------------------------------
STEP  11

TESTING
------------------------------------------------------------------------------------------------------------------------------------
STEP  12

ASSESSMENT CENTRE          
-POTENTIAL
-----------------------------------------------------------------------------------------------------------------------------------
STEP  13

OBTAINING REFERENCE        procedural element for all positions
----------------------------------------------------------------------------------------------------------------------------------
STEP  14

CHECKING REFERENCE        procedural element for all positions
-------------------------------------------------------------------------------------------------
STEP  15

MAKING DECISION          procedural element for all positions    
[ NO  DISCRIMINATION, NO COLOR BAR, NO SEX DISCRIMINATION,
PURELY  ON  MERIT ]

------------------------------------------------------------------------------------------------
STEP  16

OFFERING  EMPLOYMENT    procedural element for all positions
-------------------------------------------------------------------------------------------------
STEP   17

PREPARING EMPLOYMENT       procedural element for all positions    
LETTER
-----------------------------------------------------------------------------------------------------------------------------------
STEP  18

-HR  sends  out  letters  to  the  unsuccessful  candidates.
---------------------------------------------------------------------------------------
STEP  19

-HR  CHECKS  REFERENCES.

[ ABIDE  BY  LAW ]
---------------------------------------------------------------------------------------
STEP  20

-HR  SENDS  OUT  OFFER  LETTERS  TO  SUCCESSFUL  CANDIDATES.
-----------------------------------------------------------------------------------------
STEP  21

-THE  LINE  MANAGERS  /  AGREE  TO  THE  START DATE
AND  INDUCTION  PROGRAMME.
--------------------------------------------------------------------------------
STEP  22

PERSONAL FILE  CREATION

-HR  CREATES  ''PERSONAL  FILE ''.
---------------------------------------------------------------------------------
STEP  23
PAYROLL  ADMIN  AND  INDUCTION  
-----------------------------------------------------------------------------------
STEP  24

WELCOME  PACK / EMPLOYEE  MANUAL.
------------------------------------------------------------------------------------------
STEP  25

ARCHIVING  OF  APPOINTMENT  FILES.


[ BY  LAW,  ALL  OLD  FILES  MUST  BE  DESTROYED  ]
=======================================================
==========================================================

This procedure is intended to give staff and management  of
organisations clear and straightforward guidance on recruiting potential
employees on a fair and equitable basis. It will help you to:

*recruit and select the best candidate for every vacancy;
ensure that access to employment opportunity is based on fair, objective
and consistent criteria;
*identify discriminatory practices;
*monitor and measure the effectiveness of your recruitment practices, and
*increase your overall professionalism in the recruitment & selection
process.









This procedure complies with:

Equal Opportunities

Equal opportunities is about far more than simply making sure the employer
does not fall foul of anti-discrimination legislation. Discrimination is most
simply defined as treating a person less favourably because the person belongs
to a particular group.

An organisation committed to equality will want to be clear that it recognises
and welcomes diversity amongst the workforce, and that the workforce itself is
reflective of the population from which it is drawn and the geographical area in
which service is delivered.

DISCRIMINATION
Current law prohibits discriminating on the grounds of sex, race, colour, marital
status, nationality, ethnic origins, disability and working time (i.e. part time
workers must receive equal treatment to full time staff). Employers who fall
foul of the law should appreciate that the financial penalties can be unlimited. It
will be an inadequate defence for employers to say they did not mean to
discriminate.

Legal requirements aside, many employers are taking a broader view and are
including statements to the effect that discrimination will not occur in relation to
age, sexual orientation, or religious groupings.

Discrimination can either be direct or indirect.

Direct discrimination occurs where the employer makes assumptions about the
characteristics and abilities of a person belonging to a particular group. For
example, a business, which deliberately avoided recruiting women to work in its
maintenance squad on the assumption that women would not be strong enough,
would be guilty of direct discrimination. Direct discrimination is almost always
unlawful.



Indirect discrimination can be harder to recognise. It is found in situations
where employers apply conditions to various people, but these have a
disproportionate effect on members of a particular group. For example it would
be likely be indirect discrimination were an employer to insist that support for
staff training costs is only to be available to employees with ten years unbroken
service. Again taking women as an example, it could be argued that they would
be less likely to be able to achieve this given their greater likelihood to take
career breaks to have and raise children.

In specific circumstances the employer may be able to justify indirect
discrimination so as to make it lawful, as long as the employer can satisfy two
tests:
That there was a solid reason for the discriminatory criteria applied
That the reason the criteria were introduced was not related to sex or race
of the employee concerned.
These tests are interpreted strictly and employers should avoid any attempt to
construct circumstances in order to justify discrimination that has occurred.

SEX
Sex discrimination law protects both men and women and the scope of
legislation is often interpreted fairly widely. Any less favourable treatment,
which cannot be justified, on grounds of sex is discriminatory and thus
unlawful.
A few obvious exceptions, known as .Genuine Occupational Qualifications. are
written into this legislation to cover situation where consideration of decency
and privacy might arise. For example care staff in single sex hostels offering
high-level support to residents may need to be drawn from members of the same
sex. Again these criteria are very tightly enforced and should not be introduced
frivolously in order to get round discrimination claims.

Whilst protecting married people against discrimination,  law does not offer
similar protection to single persons. Notwithstanding this the  Equal
Treatment Directive does include single people and it would therefore be good
practice for employers to treat single people similarly and ensure, for example,
that any benefits of employment available to spouses are similarly open to
partners.

RACE
Protection under legislation covers all racial groups and so white people are
afforded the same cover as those from black, Asian and other groups. Both
direct and indirect discrimination is covered under this legislation and both are
prohibited with racial harassment being seen as direct discrimination.
Some aspects of indirect discriminatory practice may be, for example, an
employer insisting on a dress code that is at odds with dress requirements of a
group covered such as Sikhs and the wearing of headgear.

DISABILITY
This more recent piece of legislation makes it unlawful to discriminate against
people with disabilities. In an employment context it only applies to
organisations with 15 or more staff.
Under the legislation disability is defined as a physical or mental impairment,
which has a substantial and long-term adverse effect on a person.s normal dayto-
day activities. Substantial is taken to mean more than trivial or minor, and
long term means having lasted or likely to last 12 months or more.
Disability discrimination law differs from Race and Sex in that there is no use
of the two concepts of direct and indirect discrimination. Instead it is unlawful
to offer less favourable treatment to disabled people . unless it can be justified.
There also falls upon employers a duty to consider making reasonable
adjustments in order to assist people with disabilities gain equal access to all
employment benefits that are available to the general body of staff.


POLICY COVERAGE
Equal opportunities complaints most commonly arise at the recruitment stage.
However organisation should ensure that a framework of equal opportunity is
actively designed into all its employment policies and that commitment to such
principles is featured in the Job Descriptions of its senior managers.
There are three statutory bodies that are happy to offer advice to employers:
The Equal Opportunities Commission
The Commission for Racial Equality
The Disability Rights Commission


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SALES  COMPENSATION  PLAN.
AS  A  GENERAL  RULE, MAJORITY  OF  THE  SALESPEOPLE  PREFER
-base  salary [ WHICH  TAKES  CARE OF  THEIR  ‘’BREAD&BUTTER’’]
-plus sales  commission [ FOR  TARGETED  PERFORMANCE]
Say , monthly  basis.
-bonus  payment  for  extra-ordinary  performance, above the  target.
BUT  THERE  ARE  
-some  organizations , who  employ    salespeople  only  on  commission only  basis.

-some  salespeople  work  for  sales  commission only.
==============================================    
The key to any successful sales incentive plan design is to be sure it is driving the right type of behavior you want in your organization. That means are you trying to incent your sales people to be a 'hunter" or a "farmer."
The next step is to determine what you want the mix of salary to be for your sales people between fix and variable pay. The mix is usually determined by a couple of items:
1. Your overall compensation philosophy
2. How your sales people total compensation compares to your competitors
3. What you think is a fair compensation package for your sales people
4. What you can afford to pay
Lastly, as it relates to your current sales incentive design my suggestion is you look at the above comments to determine is it driving the right behaviors, is the total compensation payout competitive in the market, do your sales people understand the plan and think it is a good plan and is the plan affordable and delivering the type of results that you expect.

1. What business metric do you want to tie sales compensation to? For example, is it more important for your business to generate backlog or immediately recognizable revenue? If it's the former you might tie compensation to bookings, regardless of when those bookings will be recognized as revenue. If it's the latter, you might tie comp to revenue.
2. In terms of creating the right mindset in the sales organization, the most important thing is to make sure that the sales people feel like they will make a lot of money. It's important that they see examples of that success at the company already. You want your sales people calling all of their friends to say "I'm making so much money at this company - you have got to come work here." That often has nothing to do with structure.
3. I'm a big believer in using "game psychology" as part of our sales compensation efforts. There are no doubt a certain set of business objectives and metrics that you care about that you can create contests around (e.g. number of new customers, top performing rep based on quota achievement, highest quarter to quarter growth in quota...). Sales people like to win. They also like to be recognized as winners and most importantly to be comped for winning.
Sales Compensation Management
There are many types of sales compensation that vary based on sales performance, including:
•   base pay adjustment
•   merit increases
•   royalties
•   performance-based bonuses
•   individual achievement bonuses
•   team, group, and corporate bonuses   •   contests
•   spiffs
•   non-cash rewards
•   point programs
•   performance-based benefits
•   long-term incentives
•   equity and stock options
If your initial offer isn’t big enough and you’re in sales, instead of negotiating more salary, you can negotiate a bigger salary package. Here are some of the more common combinations:
•   straight commission
•   variable commission
•   draw against commission
•   advance against commission
•   base plus commission
•   salary
•   salary and bonus
•   residual commision
I will define them here and discuss the rationale behind each package:
Straight commission
Sometimes straight-commission jobs are the bottom of the sales barrel – the company isn’t willing to invest anything in you. Sink or swim. Good luck. On the other hand, a straight commission puts your income in your control. On straight commission, your compensation is strictly a percentage of your sales. To many people that arrangement seems like the most risky, but it’s actually the purist compensation. If you sell well, you’re safe; no one will fire you. If you sell great, you’re not only secure, you can practically write your own ticket.
Bottom line, every job is “straight commission" of a sort. If you don’t bring in more than they’re paying you – you’re fired. Draws and advances are not gifts; they come out of your sales. They simply represent payment ahead of time of a portion of your future earnings. If you don’t sell, you’re no more secure on salary than on commission.
The best salespeople love straight commission because they know they get every dollar that’s coming to them and that their income is entirely in their control. However, straight commission is not practical if you can’t make sales right away. When the sales cycle is lengthy, straight commission is ordinarily not workable.
Negotiating tip: See if you can get the commission percentage increased or tiered (increased at certain intervals of sales).
Variable commission
Same as straight commission, but the rate goes up or down depending on sales circumstances. You might be paid a higher commission on new accounts, on larger sales or on total volume over a certain amount.
Negotiating tip: An increase in commission rate for top performance can be very lucrative and motivating.
Draw against commission
Also straight commission, except the employer lets you draw a certain amount of money each pay period to help you get started. So if you have a $3,000 draw and you make only $2,000 in commissions, you would get a check for $3,000 and pay the company $1,000 back out of future earnings. Most draws are “forgivable,” which means that if the job isn’t working out you could quit and not have to pay back any money you owed the company. Draws may last indefinitely or for a specified number of weeks or months, and the draw itself may be reduced or increased over time.
Negotiating tip: Do check this out, and negotiate it as “no payback” if you can.
Advance against commission
Like a draw, but it is normally an occasional, rather than a continual, event. It usually will not exceed the amount of commissions already earned.
Negotiating tip: Try to get an advance if they’re not willing to give you a base and you need more money to cover your life expenses while on the job.
Base plus commission
This is the same as ‘salary plus commission.’ Here the company pays you a certain salary, called your base. That’s yours to keep and rely on. Above that, the company gives you a commission according to a mutually agreed-upon formula. Most sales groups use this combination. The longer the sales cycle, the higher the base needs to be.
Negotiating tip: Base salary first, then commission rates and tiers.
Salary
Some sales jobs pay a straight salary; no commission. These jobs almost always come with bonuses. If not, you can try to negotiate one. Some companies like to advertise “no pressure – our sales people are not on commission, they are there to help you.” As referenced above, all sales jobs – all jobs for that matter – are ultimately straight commission. So a salary may take the pressure off any individual sale, but rest assured you have to earn your keep.
Negotiating tip: Follow the normal salary negotiating rules.
Salary and bonus
A bonus is a one-time payment of a fixed amount of money for achieving a certain volume of sales. It could be a weekly, monthly, quarterly or even annual bonus -- or a bonus that automatically kicks in when you reach your goal.
Negotiating tip: Bonuses usually have to be uniform across the sales force, but you can still try to negotiate it higher – there’s nothing to lose in asking.
Residual commission
This is a type of commission that keeps on paying even if you quit the company. In insurance sales, for instance, after you’ve been with the company for a certain length of time, you’re entitled, for a period of time, to a commission on the payments clients make to the policies you sold them whether or not you work for the company any longer.
When your sales work involves a lot of new-account generation, you would be wise to negotiate a residual commission on those new accounts. The justification here is that the reward for selling the account belongs to you; after you leave and the account is maintained, a portion of the income should still be yours for a while.
Negotiating tip: Negotiate both the commission rate and the duration.
Watch out! Don’t get cheated out of your commissions when you leave. One of the most common, but avoidable, misfortunes in negotiating sales commissions is not being clear about what happens when you leave the company.

Whatever your commission structure is, make sure you get clear exactly how commissions and pay are handled when you leave the company.
What sales do you get paid on, and when is the payment due? Often, commissions are payable when the client pays, not when the client is billed. Those payments may lag several months after the sale is made. Get it in writing now, when you begin. You don’t want to fight this battle when you’re gone; you’d lose.
So, when the salary isn’t good enough, negotiate a draw, a bump in commission, a performance bonus or residuals. There are lots of ways to sweeten an offer.


@@@@@@@@@@@@@@@@@@@@@
The  sales  commission ,  that  is  the  commission,  paid  on  sales
 varies  with
-PRODUCT
-TERRITORY
-status  of   the  sales  reps.
===========================================
1.SALES   REPS. EMPLOYED  BY  THE  ORGANIZATION
-base  pay
plus
-sales commission  on  invoiced  sales  [ 5--8]%.
-----------------------------------------------------------------
2. SALES  CONTRACTOR  [ GENERALIST ]
who  sell  a   wide  range  of  other  products.
-sales  commission  on  sales  [ 8 --- 15 ] %
---------------------------------------------------------------
2. SALES  CONTRACTOR  [ SPECIALIST ]
who  sell  a   narrow   range     products.
-sales  commission  on  sales  [ 10 --- 18 ] %
==================================
THE  AVERAGE  SALES  COMMISION  ONLY  IS   15%


###############################################
REGARDS
LEO  LINGHAM

Sales & Sales Management

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Leo Lingham

Expertise

Any questions around sales, sales planning, sales development, sales management, sales auditing, sales strategy, salesforce management, selling skills, sales training , psychology in selling, etc.

Experience

18 years in working management covering business planning,
strategic planning, marketing and sales management, management
service, organization development etc

plus

24 years in management consulting covering business planning,
strategic planning, business developemnt, business coaching,
marketing, product management etc

Organizations
BESTBUSICON Pty Ltd--PRINCIPAL.

Education/Credentials
MASTERS IN   SCIENCE

MASTERS IN BUSINESS ADMINSTRATION

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