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Compensation is more than money. It is one of the crucial factors of salespeople’s motivation. There are basically three types of salesforce compensation plan that a selling firm can use as an alternative to compensate its salespersons. If the selling firm is large, there found the use of all these types, but separate types of compensation plan for a separate group of salesforce. In fact, these are the salesforce compensation plans used by almost all selling firms. Compensation plans are developed and implemented to motivate salespeople to work better. Here, we will discuss the most common, three types of salesforce/sales personnel compensation plans with their advantages and disadvantages in detail. Straight Salary PlanThis plan allows salespersons to receive fixed sums at regular intervals, say each week, month, or every two weeks. This is the most simple compensation plan in which you will get paid e.g. monthly for your work in a firm. Salary is fixed for weekly or monthly. Most salespeople feel free from salary payment tension since it provides a regular inflow of salary to them. Suitability of the Plan:
Advantages of Straight Salary Plan: The straight salary plan proves advantageous to both the salesperson and the management. Advantages to Salesperson:
Advantages to the Management/Sales Firm:
Disadvantages: The straight salary plan has no exception for negativities. There are several potential undesired features. They are as follows.
However, these problems can be minimized through good administration. Straight Commission PlanThis plan assumes paying each salesperson on his/her productivity – the higher the productivity, the greater the payment to each salesperson. However different commission rates are determined for different types of salespersons. The basic principle of this salesforce compensation plan is, ‘If you do not sell anything, you do not earn anything.” In this salesforce compensation plan, there are two basic types of commission plan: Straight commission and draw against commission. The first category allows straight commission but not sales expenses. It may or may not advance the earned commission. The second category, however, allows both the straight commission and sales expenses while compensating the salesforce. In this case, also, the company may or may not advance the earned commission. Suitability of the Plan:
Advantages/Strengths of Straight Commission: i. To the Salesforce
ii. To the management
Disadvantages/Weaknesses:
However, the company can minimize the weaknesses of the straight commission plan by investing considerable time, effort, and money to fully consider salespersons’ spirits. Salary Plus Commission PlanIn order to offset the disadvantages of both straight salary and straight commission incentives and thereafter capture their advantages, many companies, nowadays, have started to implement them not separately but in a combined form. In other words, this is the combination of both straight salary and straight commission types of the salesforce compensation plan. In it, the most popular pay incentives include:
Suitability of the Plan:
Advantages/Strengths of Combination Plan: An appropriately designed and administered combination plan provides significant advantages to both salespersons and the company. i. Advantages to Salespersons:
ii. Advantages to the Management:
Disadvantages/Weaknesses of Combination Plan:
What is a disadvantage of the straight salary compensation plan?Disadvantages of Straight Salary Method
It does not provide any incentive for hard work. So, it does not encourage salesmen to do hard work. 2. Under this system, rewards are not matched with efforts.
What is the primary disadvantage of using the straight salary approach to pay salespeople?The correct answer is D) failing to link effort with reward
It has a primary disadvantage that this method does not match rewards with efforts. It does not include any incentive for salespersons to complete any target and provides a common salary to all without considering someone's hard work.
What is a disadvantage of straight commission?Due to commission-only payments, the sales representatives feel less motivated to work hard and not pressure themselves to work harder. Hence, this is one of the significant disadvantages of straight commission plans.
What are the advantages and disadvantages of straight salary?They receive fixed sums of money at regular intervals (usually each month). This leaves the salespersons with no opportunity for extra money or incentives. The major disadvantage is that the salespersons may not feel motivated and would only complete the minimum requirements.
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