Sales & Marketing Management

Scenario #4:

Frequently, salespeople are paid on the basis of gross sales rather than on the
profit margin realized by the business.

Problem

In this situation, salespeople may be criticized for giving away the farm to get a
sale. They may concentrate on the items that are the cheapest and easiest to sell.
The problem is one of management and direction of the sales activity.

Possible two solutions

Rather than compensating purely on the basis of gross sales, basing a
commission structure on gross margin yield is more effective. It will ensure
that all the business' products receive the proper emphasis. However, although
this approach will yield bigger dividends for the business, it does require some
bookkeeping.

Alternatively, a system of rewards based upon PPO is much easier to
administer and much more flexible. PPO allow the Sales Manager to:

Tailor the outcomes to each salesperson and the needs and potential of their

specific territory or account base

Apply just the right emphasis on gross sales and gross margin

Promote product development

Focus on new account activity

Encourage employee personal development

Good salespeople respond positively to this approach because it reflects the
differences that exist between sales territories and rewards them on the basis of
a broader range of positive accomplishments.

Besides, they are motivated by the feeling that they have more control over
their results rather than just having arbitrary goals thrust upon them by
management.