This table focuses on net contributions to overhead (contribution to overhead minus commission) as that is the central value for the company on a contribution-based plan but tilted more positively in a value added one and negatively in a percentage of gross solution.
former employee, with the result being that it is in effect more like a base salary. In addition, a problem can arise when firms award commissions on a sliding scale, generally based on the job’s estimated margin (sales less fully allocated costs per the cost estimate sheet) on the job. This approach awards the sales person with a specific target percentage commission if a job is sold at target price, but reduces this margin if the price is discounted and increases the commission if the target price is exceeded. The goal is to encourage salespeople to consistently sell at or above the target price that the firm has set, based solely on its current cost structure and with no regard for market prices that exist for any job at any point. What really ends up happening is the focus of selling efforts becomes cost recovery pricing, when the real objective of any sales policy should be to maximize the printer’s efficient utilization of its production capacity, meaning that systems that are keyed to cost-sheet margin inevitably lead to behavior that is contrary to the interest of the firm. The sales reps avoid low- or negative-margin opportunities even though they would bring needed contribution to overhead. Similarly, systems that provide a substantial bonus to high-margin jobs
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(profit splits, etc.) mean sales reps push for quotes that produce low hit ratios leading to large lost sales opportunities. It is key to remember that producer costs do not set prices in a competitive environment; the market sets prices. Option 2: Salary plus bonus There is increasing interest in a salaried or a
salary-plus-bonus approach to sales compensation that implies the company is setting specific goals that must be achieved to maintain or exceed the compensation level. These goals should be based on desired activities performed, such as new customers added, sales calls made, or estimates generated, as well as results achieved in actual sales dollars. The argument in favor of this approach is that longer sales cycles and system selling make commission-based systems impractical. However, the challenge is that the firm must be able to define in some detail what the sales rep is to accomplish and when it is to be done to qualify for an increase in salary or a bonus. It also must have an effective and efficient means of measuring these results and to some extent verifying them. The obvious difficulty with this approach is that it isn’t self-defining like commission-based systems.
Forecast | 2018
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