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Does anyone have any information or experience with inside sales compensation/expense programs?

We are a relatively small manufacturer ($4-$5M sales) which has historically used outside manufacturer sales reps which are paid a flat commission. I am considering implementing an in-house managed staff of sales people, but need a good compensation and expense management plan that is fair, accountable and motivating. Any input or advice?

Answers

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

Make the commission on a productivity system. The more they produce the more they can earn in commission. It promotes strong sales and shows you who isn't motivated to sell.

Richard Baikie
Title: Director of Finance
Company: Super King Markets
(Director of Finance, Super King Markets) |

One thing to consider is including the payment side/aging in the calculation. I have had situations where we had uncollectable amounts build up, while the sales reps were compensated for generating sales.

S McDowell
Title: Controller
Company: SCI Electronics
LinkedIn Profile
(Controller, SCI Electronics) |

Make commissions payable upon receipt...of cash. Insist upon this and this will make your salespeople more concerned about collecting on their ARs. On the front end make them payable, but not earned upon initial sale. For example say the commission payable on a $10k sale is 10% so you would accrue $1k commission upon revenue recognition of the sale. 4 months later when the customer pays the invoice they negotiate a discount due to a volume purchase and they receive a 10% discount and pay $9k. At this point the commission earned and payable should drop to $900 unless the agreement with the salesperson does not allow for an adjustment for such discounts to their commission. Sometimes industry practice may dictate a different treatment.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Usually, Inside Sales are paid less than Outside Sales. The reason for the difference is that Outside Sales is usually required to source a lead and close the deal. While, Inside Sales are provided with prospects to call upon. There job is only to close the deal. The sale cycle and process to close is just as difficult.

I worked with a group that was paid 55 bps on the outside and 40 bps on the inside. Both groups had tiering schedules to incent more business.

Rose Suter
Title: CFO/HR Director
Company: Jay Enterprises, Inc dba: Ashley Furnitu..
(CFO/HR Director, Jay Enterprises, Inc dba: Ashley Furniture HomeSto) |

I've used 2 systems for inside sales. Commission only paid upon delivery and payment by the customer. The other was with a small base rate and an escalating commission percentage based on volume. Again, once the order is delivered and paid for. This will cover any discounts that are given for any reason.

John P. Hart
Title: Vice Pres - CFO
Company: Nova Pressroom Products, LLC
(Vice Pres - CFO, Nova Pressroom Products, LLC) |

Suggest establish a base line productivity. Paid as a base salary for showing up on time, fog the mirror, man the phones, answer email, customer orders, etc.

Then establish a commission payment on percentage of sales or net profit. Commission calculated only on paid/closed business. (easier with inside sales folks than outside)

Then make the calculation on a rolling average. Takes a while to get started, but once you've got 6-12-months under your belt, the rolling average really helps smooth out the peaks and valleys. Rewards the producers. Share the data, post it on a board in the office.

Joe Call
Title: CFO
Company: Herrick Industrial Supply
(CFO, Herrick Industrial Supply) |

Currently we are paying our outside sales force a small base and 10% on gross profit. The problem with that is no one is doing cold calls.

We were also working with our inside sales to increase the GP percentage. They said that we would be pricing ourselves out of the market. We established a commission program with a matrix which would give a bigger commission if the GP percentage was higher. Suddenly our GP percentage jumped about 3 points.

Now the problem is that we might be pricing ourselves out of the market and turning away business which would add additional dollars to our bottom line as long as the sale covers all marginal costs.

We are considering changing our inside sales commission to be based on dollars and not gross profit percentage.

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