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 compensation on sales force contributions
At the foundation of this strategy is the belief that the best way to set up compensation plans is to tie them directly to the costs of running the company.
Sales representatives contribute their share towards corporate expenses and profit. After their contribution is paid, they keep most of the rest of the money they bring into the company.
Firms that have introduced this approach benefit in several ways:
- The opportunity to make an unlimited amount of money provides a significant incentive to your sales representatives. They typically become more productive, so corporate revenue increases.
- It becomes easier to recruit new members for your sales team, particularly top producers. Improved recruitment translates into faster growth and increased market share.
- A pre-defined level of profit is built into the plans, ensuring long-term profitability, which adds value to the business and enhances the firm's financial stability.
Here's how it works...
The first goal of any company should be to make sure it can pay its bills.
Expenses come in two types: fixed and variable. To simplify a little, fixed costs are expenses that generally do not increase as business increases. Examples might include office space, utilities and salaries for support staff and management.
Variable costs are expenses that vary with the amount of business you do. Commissions, telephone charges and manufacturing costs are variable expenses. Variable costs are tied to revenue – if you don't have any sales, for the most part, you don't have those expenses. But whether or not you bring in any money, you still have to cover your fixed expenses.
Fixed costs can be allocated equally among sales representatives, with each associate responsible for bringing enough revenue into the company to cover his or her share.
Variable costs also need to be paid out of the revenue a member of the sales representatives brings in. However, because those costs are tied to sales, instead of allocating them equally, it makes more sense for each representative to be responsible for the variable costs associated with his or her sales.
To learn more, schedule a demonstration over the Internet.
