Motivating the Sales Force

Motivating the Sales Force

• LMX Theory
• Factors Influencing Motivation of Sales Person
• Designing Motivational Programme
• Motivational Tools
• Factors influencing the design of a Compensation Plan
• Types of Compensation Plan
 Factors influencing
motivation and motivational
programme
Maslow’s hierarchy of needs

Self actualisation need

Esteem need

Social need

Security need

Physiological need
Motivational Tools
 Selecting a Mix of
Motivational Tools
• Sales manager should know each salesperson and
understand his / her specific needs
• For designing or selecting a mix of motivational tools,
a compromise between differing needs of customers,
salespeople, and the company management becomes
necessary
• Motivational tools are divided into (1) financial, and
(2) non-financial. These are shown in the next slide
 Motivational Tools in a
Motivational Mix
Financial Non Financial
• Financial compensation plan • Promotion
• Salary • Sense of accomplishment
• Commission/Incentive • Personal growth
• Bonus opportunities
• Fringe benefits • Recognition
• Combination • Job security
• Sales contests • Sales meetings
• Sales training programmes
• Job enrichment
• Supervision

• Financial compensation is the most widely used tool of motivation,

as salespeople give highest value to it
Compensating the
sales force
 Compensating the
Salesforce
• A good compensation plan should consider objectives from the
company’s and salespeople’s viewpoint
• Objectives of compensation plan from the company’s viewpoint
• To attract, retain, and motivate competent salespeople
• To control salespeople’s activities
• To be competitive, yet economical: It is difficult to balance
these two objectives
• To be flexible to adapt to new products, changing markets,
and differing territory sales potentials
Objectives of Compensation Plan from
Salesperson’s Viewpoint
• To have both regular and incentive income
• Regular income by fixed salary to take care of living
expenses
• Incentive income for above average performance
• To have a simple plan, for easy understanding
• This is in conflict with the objective of flexibility
• To have a fair payment plan
• Fair or just payment to all salespeople is ensured by
selecting measurable and controllable factors
Designing an Effective Sales
Compensation Plan
• Designing a new compensation plan or revising an existing plan
consists of the following steps:
• Examine job descriptions
• Set up specific objectives for salespeople
• Decide levels of pay / compensation
• Develop the compensation mix
• Decide indirect payment plan or fringe benefits
• Pretest, administer, and evaluate the plan
• We shall examine these steps briefly
 Examine Job Descriptions
• Separate job descriptions are required for different sales positions or
jobs – E.G. missionary salesperson, senior salesperson, key account
executive
• Each job description should include responsibilities and key
performance standards, to decide how much to pay

Set up Specific Objectives for Salespeople

• These are derived from company’s sales and marketing objectives
• Salespeople should have some control on the objectives – E.G.
number of sales calls made
• Objectives should be measurable. E.G. sales volume, selling expenses
 Decide Levels of Pay /
Compensation
• It means the average pay or money earned per year (or month)
• It is important to decide levels of pay for all sales positions
• It is decided based on the following factors:
• Levels of pay for similar positions in the industry
• Levels of pay for comparable jobs in the company
• Education, experience, and skills required to do sales job
• Cost of living in different metros and cities
• Annual average pay levels vary between industries, within the same
industry, and sometimes within the company
• Firms decide a range of average pay, instead of a specific pay
• Salespeople earn pay depending on their and company performance
 Factors influencing the
design of a Compensation
Plan
Types of Compensation
Plan
 Develop the
Compensation Mix
• Widely used elements of compensation mix are: (1) salaries,
(2) commissions, (3) bonuses, (4) fringe benefits (or
perquisites)
• Expense allowances or reimbursements like travel, lodging, etc
are not included
• Basic types of compensation plans are:
• Straight salary
• Straight commission
• Combination of salary, commission, and / or bonus
• 68 percent companies use combination plan and balance 32
percent firms use straight salary or straight commission
• We shall briefly examine above compensation plans
 Straight –
• Characteristics: Salary Plan
• 100 percent compensation is salary, which is a fixed component
• No concern for sales performance or salesperson’s efforts
• This plan is suitable for sales trainees, missionary salespeople, and when
a company wants to introduce a new product or enter a new territory
• Advantages:
• Salespeople get secured income to cover living expenses
• Salespeople willing to perform non-selling activities like payment
collection, report writing
• Simple to administer
• Disadvantages:
• No financial incentive to salespeople for more efforts and better
performance. Hence, superior performance may not be achieved
• May be a burden for new and loss-making firms
 Straight – Commission (or
Commission Only) Plan
• Characteristics:
• It is opposite of straight-salary plan
• Most popular commission base is sales volume or profitability
• Commission rate is a percentage of sales or gross profit
• This plan is generally used by real estate, insurance, and direct-
sales (or network marketing) industries
• Advantages:
• Strong financial incentive attracts high performance, removes
ineffective salespeople and improves results
• Controls selling costs and requires less supervision
• Disadvantages:
• Focus is on sales and not on customer relationship
• Salespeople may pay less attention to non-selling activities
 Combinatio
n Plan
• Characteristics:
• Combines straight salary & straight commission plan
• Four types of combination plans used by companies:
1) Salary plus commission: suitable for getting improved sales and
customer service
2) Salary plus bonus: a bonus is a lumpsum, single payment, for
achieving short-term objectives. This plan is used for rewarding
team performance
3) Salary plus commission plus bonus: suitable for increasing
sales, controlling salesforce activities, and achieving short-term
goals. Also suitable for selling seasonal products like fans
4) Commission plus bonus: Not popular. Used for team selling
activities for selling to major customers
 Combination Plan
(Continued)
• Advantages:
• Flexible to reward and control salesforce activities
• Security for living costs and incentives for superior performance
for salespeople
• Rewards specific sales performance
• Different plans for different sales positions / jobs
• Disadvantages:
• Complex and difficult to administer
• May not achieve objectives if not properly planned,
implemented and understood
• Indirect payment plan, also called fringe benefits or perquisites, help
in attracting and retaining people, but have now come under
government tax in India
Questions
If you were an area sales manager, how would
you motivate the following salespersons?
•1 •2
• A high performing salesperson, • An older salesperson whose
whose morale is down because he did performance has been below
not get an expected promotion as a
expectations for past few years,
marketing executive, although he has
although he has developed
been consistently exceeding his sales
targets(or quotas) for the past four excellent relationship with few key
years. The main responsibilities of accounts, from whom the
marketing executives are selling to a company gets good sales volume.
few key accounts , and coaching some
sales trainees on the job.
• As an area sales manager, I would motivate the following salespersons as described below:
• (i) First, I would understand the reasons for not promoting the high performing salesperson from
my senior managers. The reasons may be: (a) no vacancy for a marketing executive positions, (b)
other candidates were better than this sales-person, or (c) the salesperson’s lack of inter-personal
or people skills. I would then speak to the salesperson and hear him patiently. I would explain to
him the reasons, keeping in mind to motivate him. I would also encourage him to improve,
through training programmes, in those areas which would help in career advancement.
• (ii) I would first talk to the older salesperson and listen to his ‘story’ or grievance. I would ask him
how he can contribute to the achievement of the organisational goals or objectives. Depending on
his strength and liking, I would identify key tasks, such as on-the-job training to new salespersons,
collecting key market information, payment collection from old and difficult customers. This would
be in addition to handling a few key accounts. I would also give him due respect for his age and
give recognition in public for any good work done by him.
Question 2
• Assume you have joined a company as a sales manager for hydraulic
products and services. The company was recently selected as
authorized distributor for MICO-Bosch hydraulic products. As a
distributor, your company is required to perform various tasks, such
as prospecting, promoting, preparing technical offers, negotiating and
getting orders, executing orders, collecting payments, giving pre-and
post sales service, and maintaining excellent customer relationship.
Your company is required to operate in Mumbai territory (including
new Mumbai). Develop a compensation plan for your sales people,
including financial and non-financial compensation methods.
• For developing an effective compensation plan, I would go through the following steps:
• (a) Study the job descriptions of the salespeople to understand their job responsibilities and key result (or
performance) areas.
• (b) Decide specific objectives for the salespeople. In this case it includes: (i) number of new customers developed,
(ii) value of orders received, (iii) customer satisfaction
• (c) Determine the levels of compensation based on (i) levels of pay for similar positions in the industry, (ii)
technical education (engineering), experience in years in similar jobs, and selling skills
• (d) For developing a compensation mix, out of the three basic types of compensation, I would select combination
plan, because it takes care of salespeople’s objective of getting a fixed salary for meeting with living expenses and
the company’s objective of flexibility and control over salesperson’s activities. In combination plan, I would select
salary (60%) plus commission (20%) and bonus (20%) plan. I would keep indirect payment or fringe benefits as
minimum as possible due to tax element introduced by the finance minister recently. It would include medical
reimbursement up to a limit, group life insurance to cover travel and accidents, and leave travel allowance. The
new compensation plan would be pre-tested by involving salespeople, human resource and finance executives
Question 3
Suppose you have faced with the following problems, as a sales
manager,
• Salespeople are not spending adequate time to develop new customers.
• Salespeople are selling profitable products less than non-profitable and easy-
to-sell products to achieve their sales volume quotas.
to achieve their sales volume quotas. Suggest a compensation plan that
can be used to solve these problems.
• The compensation plan to resolve the stated problems are mentioned hereunder:
• (i)If the salespeople are not spending adequate time to develop new customers, then the
specific objectives or sales quotas should include a target for “number of customers to be
developed” as one of the performance standards, which are linked to the commission
part of the compensation plan
• (ii) If the salespeople are selling the non-profitable products more as compared to the
profitable products, then the sales volume quota should be stated in points (e.g. 1000
points per month). Products should be classified into high, medium, and low profits, and
assigned points. For example, high profit products should be given 3 points for each unit
sold, medium profit products 2 points each, and low profit products 1 point each. Sales
volume quotas or targets in points are linked to the commission part of the compensation
plan.
•