Sales Force Size and Compensation
Once the company clarifies its sales force strategy and structure, it is ready to consider sales force size, based on the number of customers it wants to reach. One widely-used method for determining sales force size is the five-step workload approach: (1) group customers into size classes by annual sales volume; (2) establish call frequencies, the number of calls to be made per year on each account in a size class; (3) multiply the number of accounts in each size class by the call frequency to arrive at the total yearly sales call workload; (4) determine the average number of calls a sales rep can make per year; and (5) divide the total annual calls (calculated in step 3) required by the average annual calls made by a rep (calculated in step 4) to see how many reps are needed.
Suppose the company has 1,000 A accounts and 2,000 B accounts; A accounts require 36 calls a year (36,000 calls yearly), and B accounts require 12 calls a year (totaling 24,000 calls). The company therefore needs a sales force that can make 60,000 sales calls a year. If the average rep can make 1,000 calls a year, the company would need 60,000/1,000, or 60 sales representatives.
Many companies are shrinking their sales forces because the sales department is costly to maintain. Consider the situation of Coca-Cola Amatil, the Australian Coke franchisee. Amatil used to maintain an army of reps to call on small milk bar (corner store) accounts. These reps would often make up to 30 sales calls per day, staying just long enough to take an order and perhaps show one new product. When Amatil looked at the costs of sending these reps out to milk bars, it saw a good deal of wasted time and money. Now Amatil contacts these small accounts through a regular schedule of telemarketing, freeing up its field reps to concentrate on larger accounts. This move has resulted in a much lower cost per order and made small accounts financially feasible.
The compensation package is a critical element in attracting top-quality sales reps, starting with the level and components. The level of compensation must bear some relation to the "going market price" for the type of sales job and required abilities. If the market price for salespeople is well defined, the individual firm has little choice but to pay the going rate. However, the market price for salespeople is seldom well defined. Published data on industry sales force compensation levels are infrequent and generally lack sufficient detail.
The company must next determine the four components of sales force compensation—a fixed amount, a variable amount, expense allowances, and benefits. The fixed amount, a salary, is intended to satisfy the sales reps' need for income stability. The variable amount, which might be commissions, a bonus, or profit sharing, is intended to stimulate and reward greater effort. Expense allowances enable sales reps to meet the expenses involved in travel, lodging, dining, and entertaining. Benefits, such as paid vacations, sickness or accident benefits, pensions, and life insurance, are intended to provide security and job satisfaction. Fixed compensation receives more emphasis in jobs with a high ratio of nonselling to selling duties and in jobs in which the selling task is technically complex and involves teamwork. Variable compensation receives more emphasis in jobs in which sales are cyclical or depend on individual initiative.
Fixed and variable compensation give rise to three basic types of compensation plans—straight salary, straight commission, and combination salary and commission. Only one-fourth of all firms use either a straight-salary or straight-commission method, while three-quarters use a combination of the two, though the relative proportion of salary versus incentives varies widely.8
Straight-salary plans provide sales reps with a secure income, make them more willing to perform nonselling activities, and give them less incentive to overstock customers. From the company's perspective, they provide administrative simplicity and lower turnover. Straight-commission plans attract higher sales performers, provide more motivation, require less supervision, and control selling costs.
Combination plans offer the benefits of both plans while reducing their disadvantages. Such plans allow companies to link the variable portion of a salesperson's pay to a wide variety of strategic goals. One trend is toward deemphasizing volume measures in favor of factors such as gross profitability, customer satisfaction, and customer retention. For example, IBM now partly rewards salespeople on the basis of customer satisfaction as measured by customer surveys.9
Continue reading here: Customized Customer Loyalty By Robert Duboff And Lori Sherer
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