Sales Volume % to Target
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Threshold Threshold Target 100% Price Realization % to Target Excellence
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Figure 5-45 9C Matrix Bonus Formula
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Observations In the bonus matrix illustrated in Figure 5-45, we see that sales volume has a higher incentive weighting than price realizationThis design has a double threshold and a double cap at the top end The salesperson cannot earn greater than 300 percent of his or her target incentive
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Sales Representative: 10 Bonus with Drop-In Commission
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Sometimes sales management will need the use of a hybrid bonus and commission plan (see Figure 5-46) An example is the drop-in commission rate This technique uses a bonus formula to reward quota performance, but provides a drop-in commission rate to recognize and reward larger sales territories
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Observations The reason this technique is called a drop-in is that it provides additional sales rewards for a defined range in this case, starting at $2,000,000 and terminating at $5,000,000
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Component Part 1: Base Salary Part 2: Bonus Schedule
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Bonus/Commission Hybrid Base Salary/Year $65,000 Bonus paid as a percent of base salary: Sales Performance Bonus: % of Percent to Goal Base Salary 150% and over 105% 125% to 149% 85% 110% to 124% 65% 105% to 109% 50% 100% to 104% 35% 90% to 99% 15% 80% to 89% 5% Below 80% 0 Drop-in Commission Rate (per Net Sales Revenue) Sales Volume Between $2,000,000 and $5,000,000 15%
Part 3: Drop-in Commission Rate
Drop-in Commission Rate
Figure 5-46 Hybrid Bonus and Commission Plan
Sales Representative: 11 Management by Objective/Key Sales Objective
In some instances, sales management needs to create unique incentive objectives for individual sales personnel The use of a Management by Objectives (MBO) component provides the flexibility to craft unique measures per salesperson Although MBOs have a long history in the corporate environment, the sales force has recently adapted the MBO concept for sales situations Key Sales Objectives (KSOs) provide a handy framework for sales executives to develop incentive payouts tied to individual performance Here are some of the design considerations when creating a KSO program:
I I I
Balance KSOs by not letting any single measure be worth more than 50 percent and not less than 10 percent Limit KSO measures to five or fewer Select measures that impact sales results and are quantitative Provide KSO visibility through a database accessible by senior sales management
Require two levels of supervisor review before final KSO objectives are established and payouts are made Require two levels of supervisor review for any modifications during the program period
A preferred method is to use a point system to assign and calculate the KSO values and payout scores (see Figure 5-47) One method is to create a 200-point maximum scoring scheme with 100 being considered par, or expected performanceThe KSO worksheet can divide up the value of the points depending on the weighting of the KSO performance measures
KSO Commitments and Scoring Sheet Elements
Factor Commitment Objectives Weighting Point Value (A) Performance to Goal (B) Performance Point Value AxB= Performance Comments Authorization Date:
New Customers 7 over $500K in Sales 20% 20 pts 110% 22
PrePackaged Solutions 15 Signed Contracts 25% 25 pts 120% 30
Target Discount Rate 8%
Cancelled Orders <5%
Customer HQ Visits 5/Qrtr
25% 25 pts 85% 2125
15% 15 pts 75% 1125
15% 15 pts 50% 75 92
Figure 5-47 KSO Commitments and Scoring Sheet
Figure 5-48 illustrates the conversion of points to dollars
Observations The target incentive amount can vary by salesperson The KSO program is capped, which is a normal feature of KSO plans Most KSOs are set quarterly, semiannually, or annually
Component Target Incentive
KSO Point Payout Schedule KSO Target Incentive $5,000
KSO Payout Schedule
Points 175 200 150 174 125 149 105 125 95 104 75 94 50 74 below 50
Percent of Target Incentive 150% 125% 110% 105% 100% 75% 25% 0
Figure 5-48 KSO Point Payout Schedule
Formulas for Sales Teams
Many sales organizations need to provide sales support to customers using a team approach Sales team members contribute to the successful sale of products, services, and solutions to the customer There are two types of sales teams: Dedicated Sales Teams and Opportunity Sales Teams Below are three examples of team formulas: 12A Dedicated Sales Team Specialist Model 12B Dedicated Sales Team Collaborative Model 12C Opportunity Sales Team Event Awards 13 Base Salary Step Plan