Sales commission

The sales commission is usually used to honor the sales performance of the commercial agent. The amount of the remuneration is determined as a percentage of the turnover achieved. According to the assessment basis, a distinction is made between total and selective sales commission.

With the total sales commission, the entire sales are rewarded with a uniform rate. In the selective form, the commission rates are differentiated according to product and / or customer group. The commission scale is mostly based on the contribution margin of the individual product or customer groups.

According to the structure of the commission rates, a distinction is made between linear, progressive and degressive sales commission. In the linear form, the commission rate is constant, ie the remuneration changes proportionally to the amount of sales. With the progressive or degressive form, the commission rates rise or fall with growing sales. The combination of the various assessment bases and design options results in numerous alternatives.

Advantages of sales commission:

Depending on the design, the sales commission is a constant, progressive or degressive performance incentive.

Differentiated commission rates mean that salespeople concentrate their efforts on profitable products or customers.

Die Umsatzprovision verursacht nur variable costs, d. h. bei rückläufigem Umsatz gibt es keinen Remanenzeffekt wie beim Festgehalt.

The linear total sales commission is clear and easy to use.

Disadvantages of the sales commission:

The sales representatives concentrate on easy-to-sell products and high-turnover customers, which is often at the expense of earnings. This disadvantage can be reduced by staggered commission rates.

Die Verkäufer werden verleitet, zu hohe Rabatte und zu lange Zahlungsfristen einzuräumen. Dieser Gefahr kann dadurch begegnet werden, dass die Konditionen vorgegeben werden oder dass die Provision bei höheren Preisnachlässen und längeren Zahlungsfristen gekürzt wird (Sales conditions commission) .

There is a risk that customer advice and other services are neglected

become. This danger threatens especially when the commission rates are progressive. The undesirable side effects of such incentives are dissatisfied customers.

It is possible that the willingness of the seller to perform decreases as sales increase. Declining commission rates slow down the motivation of the seller and thus the expansion of the company because existing market opportunities are not used.

If sales drop sharply, there is a risk that good salespeople will migrate to other companies.

The determination of the commission causes a high administrative effort if the commission rates are staggered and / or vary with the amount of sales.

The sellers' income fluctuates depending on the season, market and delivery situation. The financial uncertainty of the seller can be alleviated by payments on account, but this blurs the direct relationship between performance (contribution) and remuneration (incentive).

The sales commission contradicts the principle of equivalence for the following reasons:

The individual sales districts usually have different requirements (e.g. customer structure, intensity of competition, etc.). These differences in requirements would have to be taken into account in the amount of the commission rates, but this has hardly happened in practice so far.

Revenue is not a clear measure of a salesperson's performance. A seller's turnover is characterized by certain products, quantities, customers, prices, terms of payment and a certain contribution margin. The quality of sales is to be assessed differently depending on its structure. If two salespeople have the same sales, z. B. the corresponding contribution margins may be different. In the event of default on claims, there is no performance at all.

The turnover of the individual salespeople depends not only on their performance, but also on the company's overall marketing policy. Seller's commissions may decrease despite increased efforts if demand declines due to increased competition. The performance share of the sellers is high when there is excess supply (buyer's market) and low when there is excess demand (seller's market).

Despite the same real performance, the sellers' incomes can fall if sales prices fall (deflation effect) and rise if prices rise (inflation effect).

A high income of the salespeople in the field service causes dissatisfaction among the employees in the back office. The differences in income change over time, depending on the remuneration system (fixed salary, commission) and sales development. The different pay for field and office staff can lead to envy and tension between colleagues.

Possible consequences are disruptions in cooperation, inadequate customer service, declining willingness to perform on the part of internal staff, increasing absenteeism, internal layoffs and / or high fluctuation. A team commission can reduce or even eliminate this disadvantage.

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