Salesmen remuneration plan – Conditions to be fulfilled
The salesmen play a crucial role in determining the progress of any business. The manner in which they will be compensated for their work is, therefore, very important. The Salesmen remuneration plan shall fulfill the following conditions:
1. The remuneration plan should be linked to the target set for each salesman. This will motivate the salesman to achieve the target set for him.
2.If the remuneration to salesperson is determined according to his performance, each salesperson will try to work hard and maximize sales output.
3. Remuneration plan also enable the firm to expand its market.
4. The remuneration plan should appear to be simple. The manner of calculating the remuneration of each salesman must not involve tedious calculations.
5. The plan must not be rigid. It must be capable of being adjusted in tune with the prevailing conditions.
6. The remuneration package must not involve heavy payments for the firm. At the same time it should not be inadequate for the salesmen also for the work done.
Methods of Remunerating Salesmen
There are three types of remunerating salesmen. They are Straight salary method, Straight commission method and salary plus commission method. They are briefly explained as below.
1. Straight Salary Method of remunerating salesmen
By this, we mean that the salesmen will be paid the same amount every month irrespective of the work done.
Advantages of Straight salary
The advantages of straight salary are:
1. It is simple to calculate.
2. Straight salary methods gives secured feeling for the salesperson as he receives an assured payment.
3. It provides them with stable income.
4. There will be no scope for ill feelings among salesmen.
5. The administration work involved is also considerably less.
Disadvantages of straight salary
1. No formula is generally available for determining straight salary.
2. It does not do justice to those who are really efficient and hard working.
3. It will not motivate efficient salesmen to maintain the same level of performance.
4. It enables even the less efficient salesmen to get payment on par with the efficient salesmen.
5. As all the salesmen are paid the same salary, they may not work hard to enhance the firm’s sales. The sales may even begin to fall after sometime.
2. Straight Commission method of remunerating salesmen
Salesmen who are paid straight commission get payment according to the quantum of sales achieved by them. This is in contrast to straight salary.
Advantages of Straight Commission method
The following are the advantages of straight commission:
1. It enables the efficient salesmen to earn more.
2. It does justice to those who are hard working.
3. It does not reward those who are less efficient and careless.
4. It makes it possible for the firm to enhance sales, as efficient salesmen feel motivated.
5. It helps to identify inefficient salesperson.
Disadvantages of Straight Commission method
1. Calculation of remuneration is not simple.
2. It gives scope for ill feelings among salesmen.
3. It may not assure stable income.
4. Sometimes, due to unexpected circumstance, there may be fall in sales even though the salesman has put in his best effort. As a result even the most efficient salesperson may end up getting low remuneration.
5. It involves lot of administrative work.
3. Salary plus Commission method of remunerating salesmen
Under this method, a salesperson receives part of the remuneration as fixed salary every month. The other part will be paid in accordance with the volume of sales achieved by them.
This method gives the advantages of the first two methods discussed above. But the drawback of this scheme is that it is not easy to determine the fixed and the variable components of the sales men’s remuneration. Moreover, the administration of such a method is tedious.
Other forms of compensating salesman
1. Bonus: It is a payment made to sales person, as a lump sum, usually at the end of the financial year. It may be based on performance, sales or the profits earned by the business.
2. Non-cash benefits or fringe benefits: These include rent-free accommodation, medical facilities, subsidized food, provision of two wheeler or car etc.
3. Certificates and Prizes: Salesmen, who have shown very good results during a particular period of time, may also be given merit certificates and prizes.