How the Salesforce and Company Each Save Time AND Improve Performance by Converting Sales Reps Commissions to a % of Gross Margin
In order to convert sales reps' commission to a % of gross margin, you must have an understanding of how the contribution-based approach is used in commission structures and further, to establish whether your company is ABLE to use this approach at all.
Being ABLE aside, one must have access to the financials and the sales reps' production, individually and collectively. You must also be able to differentiate between the sales reps Gross Sales (i.e. Sales volume) vs Gross Margin (revenue after cost of sales).
During P/L management exercises the sales commission expense is often overlooked as it is seemingly an item that can’t influence the profit outcome.
The reality is, paying commissions on a percentage of gross margin using a contribution-based approach can influence profitability as the commission plans are tied directly to the cost of running the business.
Tying commission plans directly to the gross margin supports enhanced cost control of sales compensation plans and ensures that fiscally responsible commission plans are designed that can positively?impact?profitability and share value (eliminate wasted time and improve performance with no runaway plans).
- Sales Management gets exciting plan designs, increased?productivity, increase profitability, salesforce satisfaction, motivated sales force, competitive advantage.
- Marketing gets a focused sales force, increased market share, faster product penetration, motivation & excitement.
- Human resources get increases recruitment, stronger more?qualified candidates, easily articulated incentive programs, easy administration, and stronger retention.
- Operations enjoys more accurate forecast modeling, competitive offerings, faster go-to-market penetration through individualized?compensation?methodology.
Commission plans based on a % of gross margin can have the ability of creating a seamless synergy across all functional groups.
We are proud to offer an online course on paying commissions on a % of gross margin.