This table begins with a typical job produced in-house at normal cost sheet margins. It then illustrates alternative scenarios, including jobs with lower and higher than normal margins, and brokered jobs.


The second part of the table looks at commissions on these alternative situations, using different commission plans. Finally, the table shows the net contribution to overhead in each scenario/commission plan combination.


The reader may observe the significant variation in contribution to overhead between scenarios and the reality that a commission plan on value added or overhead is superior to traditional structures.


difficult to define, much more than the job of the press operator or the accountant. The skill set needed to succeed is both technical and highly personal. The result of this is twofold. First, the failure rate


of trainee sales reps is very high as it is difficult for either the management or the trainee to accurately identify the personal characteristics that will lead to success or failure. This makes hiring sales staff extremely problematic, leading to the second issue: the compensation of sales reps is generally performance-based. As a result, sales people who do not do well are quickly identified and to some extent


“self-select” their departure. For the successful ones, compensation can be high, which may create problems in their relationships with other employees or with management or ownership.


While we acknowledge that ultimately all employees,


salespeople included, have to feel they are being treated fairly if they are to continue to work for any firm, we are also certain that performance-based compensation should logically be centered on the objectives of the sales rep’s employer. That means the first step must be defining what those objectives are. Presumably, maximizing sales is central, but since not all sales are equal, maximizing profit from sales is a better starting point. Tempting though this is, defining profit on any particular sale is far more problematic than defining profit for the firm as a whole. Therefore, a reasonable proxy might be used including contribution to overhead or value added. We discussed this issue in an article in the December issue of The Magazine, “Becoming a High-Profit


The Magazine 11 Forecast | 2018


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