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Structuring Compensation Plan to Increase Sales

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The following case scenario is thoroughly addressed in over 300 words. There is detail on exactly how varied compensation can entice increased performance.

You are the Sales Manager for your company. Your sales team is one that, once they gain the initial sale, enjoys considerable repeat business. Sales representatives are paid a base of $35K and their commission package can add as much as $49K a year (average). Top producers make as much as $65K a year in commission--along with their base pay, they make $100K.

Sales representatives have not been aggressive in pursuing new business. They have become comfortable in making repeated sales calls on their existing customers "to be visible" and to handle any issues. Your VP of Sales wants to see a 12% increase in NEW business next year. How might you structure the compensation plan to drive selling behaviors that would result in more effort being made to gain new business?

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Solution Preview

The compensation structure should be revised into two categories: new sales and repeat business. To create incentive for the sales team to pursue new customers, sales resulting from acquisition of a new business should come with a higher commission. The difference could be in the 10 to 20 percent range higher than the commission base paid for repeat business. This premium would be paid on the first, new sale only. Also, competition can often ...

Solution Summary

When employees are paid salary and commission, or an additional bonus based on performance, compensation plans can be varied to potentially increase sales. These strategies can often provide the incentive for employees to meet and even exceed goals.