Philosophy
CompensationMaster's approach to systematizing compensation is based on strategies that have been proven to offer significant benefits.
Key components to this approach are:
- Base compensation on sales force contributions
- Treat profit as an expense
- Allocate expenses fairly among sales professionals
- Base commissions on breakeven
- Offer a choice of compensation plans
- Recoup costs
- Align sales force and management
- Reduce waste
Base commissions on breakeven
The next step is to identify the correct placement of commission levels.
Dividing total expenses by the FPE provides the breakeven point, which is the amount of money each sales associate needs to bring in to cover corporate expenses and profit.
Then you can determine what percentage of each sale needs to be held back to cover variable expenses. That provides the maximum a company can afford to pay out once fixed expenses are covered.
Once you have calculated the amount each representative must contribute for corporate expenses and profit, along with the highest commission level the company can afford to pay, you are ready to begin designing compensation plans.
One way to structure plans is to have the representative's commission level start out low, because the company is keeping enough money to pay both fixed and variable expenses. Once the company has taken out enough money to pay fixed expenses, that contribution stops. The money that was going to the company to pay fixed expenses now goes directly to the sales representative. The sales professional will now typically receive a substantially higher commission.
This type of design is most effective at aligning the goals of the sales force with the goals of the company, and at reducing waste. However, it may not be appropriate for your sales force.
CompensationMaster's sales compensation software makes it possible to design any type of compensation plan: salary plus bonus, 100% commission, high split, retroactive, multi-level, and more.
You can build in any type of perquisites, any type of services, and any type of benefits.
The software alerts you if a plan does not meet your financial goals. This reduces the risk of implementing new commission structures, and allows you to design compensation plans with confidence.
To learn more, schedule a demonstration over the Internet.
