Straight Commission Method of Remuneration | Features | Merits | Demerits

Features of Straight Commission Method of Remuneration

Under Straight Commission method, no fixed monthly salary is paid to a salesman. Only a certain percentage of commission is paid to him on the volume of sales effected by him. Under this method, remuneration is paid to a salesman on the actual sales made by him and not on the basis of the time spent by him.

Straight commission method of remuneration
Straight commission method of remuneration – Features, Advantages, Disadvantages

The commission to salesmen may be paid at a fixed rate on the total volume of sales, say, a commission of 5% on sales upto Rs. 25,000, a commission of 8% on sales over Rs. 25,000 upto Rs. 50,000, a commission of 10% on sales over Rs. 50,000 upto Rs. 75,000 and so on. The rate of commission may, sometimes, be fixed, not on the value of sales made, but on the total quantity of goods sold. Again, the rate of commission can also differ from one product to another.

Straight Commission method is commonly adopted by concerns dealing in automobiles, office appliances, basic raw materials like chemicals, leather, iron ore, dry fruits, fresh vegetables, etc.

Advantages of Straight Commission Method of Remuneration

1. Straight Commission Method is simple, and it can be easily understood by all types of salesmen.

2. The cost of calculation and administration of this wage scheme are low.

3. There is a direct relationship between the reward and the sales made by the salesmen.

4. It gives greater incentive to the salesmen, as they can increase their income by increasing their sales.

5. It distinguishes between efficient and inefficient salesmen by rewarding the efficient and penalizing the inefficient.

6. It is attractive to the talented, energetic and ambitious young men/women.

7. Under Straight Commission Method, the costs of sales can be estimated in advance on the basis of the budgeted sales.

8. Under this method, the sales costs are matched with sales.

9. It helps in securing the services of salesmen who cannot be had as permanent staff.

Disadvantages of Straight Commission Method of Remuneration

1. The salesmen are not assured of any living wage. As such if no sale is effected by a salesman, no remuneration is paid to him. Hence, this system does not provide any sense of security to the salesmen.

2. There is no uniformity in the earnings of the salesmen of the same cadre under this method.

3. As the remuneration of the salesmen under this method depends upon the volume of sales effected by him, the salesmen may resort to high-pressure selling, which is harmful to the customers and also to the firm in the long run.

4. As the salesmen remuneration depends upon the volume of sales, the salesmen may be reckless in increasing their sales. This reckless selling by them may lead to more bad debts.

5. It does not give the management enough control over the salesmen, as the reward of the salesmen depends upon their own efforts.

6. This method is not suitable for goods which require after-sales services, as it gives importance to immediate sales and not to continued patronage.

7. This method may turn out to be unfavorable to the salesmen in times of depression when sales decline due to factors beyond the control of the salesmen.