| Frequently Asked Questions |
|
|
|
Subject: Advice on Sales Bonus 21st September 2007 We are currently negotiating a position of National Sales and Marketing Manager. One of the 'stickier' points is the structure of the bonus. So far agreement is on the split of 75%:25% Financial:Non-financial measures,also - Reaching 100% of target gives a bonus of 25% of the base pay. I would like advice on your experiences of what has worked best, with particular attention to: Where to start the scale (for example if the target is to increase sales by 10%, then the bonus starts after 90% and reaches its maximum at 100%) How far is reasonable for the scale to continue after 100% of target. In other words, at what point is a reasonable cap? 110%, 120%, no cap? Please note that we are aware of the effect of the sales increases on the bottom line, we are just after general guidelines to structure the bonus. Thanks, ResponseDear Tony, These are interesting questions, the like of which we get asked all the time at Aorta Sales. Please see www.aortasales.co.uk. The overriding important point to bear in mind, is that AT ALL TIMES the individual's pay reward must exactly match what is good for the company. Nothing is worse than sales people being rewarded for results which have not in similar proportions but greater amounts helped the success ad prosperity of the company. Keep this proposition in mind and many of the types of questions that you ask become much easier to answer. Looking at your specific questions, it is difficult to supply comprehensive advice without knowing more, but, some comments in principle: * The rewards must match the effort expended by the sales person. * This means that if the target is to increase sales by 10% and the sales person has no influence on the existing business revenue (i.e. it is recurring revenue from previous deals and no ongoing 'account management' is required) then there is nothing wrong with ignoring the existing business completely and incenting the Sales & Marketing Manager on new business only - in effect giving a much larger bonus on the 10% only. * If existing account management, customer contact, stimulation and encouragement is required, then some reward can be given but perhaps at a lower rate than that paid for new business, to reflect the greater focus, effort and attention which the company is indicating it expects the individual to pay to gaining new business. Perhaps the ratio could be to halve the rate on additional business from client accounts, but increase (double perhaps) on new business. You would need to model and experiment, but again, it must evolve from what the company actually wants. * Also be careful with rewarding the non-financial measures, this is probably inevitable for a role involving a marketing element, but the important thing is to be sure to be only paying a bonus, or hitting targets when the company's sales targets (i.e. revenue coming in) have been met or exceeded. * With regard to commission capping, this is again a Frequently Asked Question and again the point to bear in mind is what exactly does the company want. If the company is in, say, manufacturing and 10% over target will exceed their production capacity, then it makes sense to cap the sales commissions, because sales brought in in excess of capacity will not be fulfilled and will not earn revenue for the company. If though, the 'more business the better' for the company, then why ever would you discourage sales?, in effect saying 'enough is enough guys' to your sales people. If the company can benefit from as much business as possible then the sales people should be rewarded by overachievement commissions and perhaps bonuses. Hope this helps, would you mind if we placed this exchange into the FAQ section of our website (your personal details would be omitted). Many thanks.
Extract from 'Ask the Expert' on-line session 12th September 2007
|
||||||
| < Prev | Next > |
|---|