Remuneration - Marketing Management

Since profitability is important, management needs to seek ways to stimulate salespersons to sell more profitably using equitable remuneration methods. Thinking in terms of profitability moves away from traditional remuneration schemes geared to turnover. The three main methods are commission, salary plus commission, and salary only, although there are variations. Commission is a simple method. If the salesperson works, and achieves results, he or she gets paid. The advantage of a commission-only scheme is that the employer knows exactly how much cost of sales will be, and the salesperson knows that he or she will only be paid if they work to achieve sales. This is simple, but there is a strong element of insecurity in a commission-only system. It is not wholly satisfactory in that sometimes the salesperson may not wish to work so the employer is left without any sales coverage. Much depends on the nature of the product and the way it is sold. A major disadvantage of commission-only remuneration is the potential for misselling as mentioned earlier and the reputation of the company might suffer as a result of negative publicity. Sales and commission is the most common method of remuneration. Commission includes bonuses and profit sharing. It offers more security to the salesperson. The proportion of salary to commission varies depending upon the company and its products.

Salary Although it may appear to be lacking as a means of creating incentive, it is popular with salespeople who prefer a more straightforward arrangement. It must be considered that some situations are more suited to this type of payment. Sometimes it is not possible to establish what has been sold by individual salespeople, or total sales effort might due to background technical personnel e.g. the attainment of an IT consultancy contract. In addition, in lean manufacturing situations, the task of the sales representative concerns non-selling duties as the company they represent might be the only source of suppl. In addition, in the case of capital goods like the construction of an oil refinery, the time delay between enquiry and receipt of order can be too long for a commission payment system to be an incentive. Variations to the methods cited include:

  1. A basic salary plus commission above a certain figure. Here the salesperson, once the target has been reached, starts to earn commission on amounts above this sum.
  2. A basic salary plus an escalating scale commission. Here the salesperson receives a salary plus a commission e.g. 1⁄2 per cent on the first £5,000 sales, 1 per cent on the next £5,000 and 11⁄2 per cent on amounts over this. This figure can be related to monthly sales targets.
  3. A basic salary plus commission on the type of outlet to which the goods are sold. Here, the salesperson might receive a salary plus commission as follows:
  • 1⁄2 per cent on wholesale orders;
  • 1 per cent on multiple chain orders;
  • 1 per cent on co-operative store orders;
  • 11⁄2 per cent on independent orders;
  • 11⁄4 per cent on department store orders.

Incentives include group incentives, where a team of salespeople form a group, and if the group fulfils its performance, all members benefit. Some companies use incentives that benefit the salesperson’s family, perhaps in the form of holidays or gifts like domestic appliances or children’s presents.

It is important to ensure that the pay and benefits structure corresponds with:

  • the company’s market segments;
  • the company’s stage of development;
  • the company’s goals and objectives for the future.

A company can implement a marketing strategy via remunerating differently for diverse kinds of work. It can be weighted towards missionary selling (i.e. seeking out new customers) as this will involve more time and effort than servicing existing clients. If a company’s marketing objective is not specifically that of growth, expanding the customer base through missionary selling is less important. The company may wish, for instance, to put maximum effort into account servicing to consolidate existing customers. Remuneration policy should reflect this objective although it might need to be adapted for companies selling multiple products. Salespeople working on a commission plan understandably tend to concentrate on products that offer most commission. Setting sales targets by volume is only a partial answer since salespeople will tend to concentrate on higher value items. A solution is to offer higher commission on sales of particular products or extra commissions or bonuses for sales of excess or obsolescent stocks.

Creatively designed incentive plans are useful for achieving corporate and marketing objectives other than sales volume. Straight salary may be a poor motivator for increased sales, but it may be instrumental in helping to achieve other company objectives, since the salesperson, being free of the pressure to sell, can concentrate on these other objectives such as providing exemplary service. By using financial incentives imaginatively, the sales manager can motivate the sales force to ensure the company’s objectives are carried out. A clearly defined remuneration policy helps to achieve the following objectives:

  • attracts sales personnel of the right calibre;
  • encourages sales personnel to achieve their job objectives;
  • rewards sales personnel in accordance with the value of their contribution;
  • prevents losses made through dissatisfaction with levels of pay;
  • encourages good sales personnel to stay with the company;
  • enables sales personnel to move up or across departmental, divisional or company boundaries.

Salespeople tend to work alone, unsupervised for long periods and visits by supervisors tend to be brief and infrequent. It is important to provide clear objectives and standards. Management by objectives (MBO) enables managers to lay down a clear and precisely defined sales job. Setting realistic sales targets in co-operation with the salesperson makes their achievement more likely, and the salesperson has a clearer idea of what is expected to achieve results.

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