Printer,” in which we highlighted the importance of focusing on contribution or value-added effects of new sales. This approach is critical to making the best decisions in any printing company and is of particular importance when designing any sales compensation plan. Of course, the first step is hiring the sales rep. In


most instances, these will be promising trainees who must be paid enough during their learning process to get them to accept the position, but not enough for them to be comfortable with it as they (and their firm) need to move to performance-based compensation as soon as possible. However, for many firms, seeking out experienced


professionals with a presumed “book of business” or following is the chosen strategy. This is a very dangerous strategy and simply does not work. There are two main reasons, the first of which is relevant for all new applicants. Why is the applicant either currently unemployed or seeking a new employer? Unless the reasons for this are well understood, and to some extent confirmed prior to making an offer, decisions to hire based solely on the representations of the candidate frequently turn out badly. Secondly, in today’s markets, customers generally stay with a printer because of the quality, service, and pricing


that they are receiving. Changing print suppliers simply because the sales rep has changed is unlikely to happen, unless the customer is given an incentive to do so.


Performance-Based Options Option 1: Draw against commission on gross sales Sales reps in the industry have been historically


compensated on a “draw against commission” system. Generally, the basis of the commissions earned is a percentage of sales. The draw, which is utilized to provide some balance in month-to-month cash flows for both employer and employee, is then set at a level lower than the expected annual earnings of the sales rep. The difference between what has been earned in commissions and what has been paid through the draw is settled periodically. Though fairly simple and easily understood, this approach has some problems. First, though the employer feels that the draw is a form of employee advance against future income to be earned, when there is an “over advance,” the ability to adjust the draw amount usually ends up with the loss of the sales people. In their minds, the draw is thought of too oſten as a guaranteed level of income. Very few states allow an employer to seek repayment of over-advanced commissions from a


This table shows the change in sales compensation in each of the scenario/commission plan combinations, then presents the variations for each as compared to a simple commission plan based on 8% of sales.


Compensation in the first column is constant, while that in other columns reflects the profitability to the company of the alternative situations. Note that compensation improves overhead contribution scenarios in the value added and contribution approaches.


The Magazine 12 Forecast | 2018


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