Tuesday, September 09, 2014

Commercial Executive Behavior and Wage Incentives (2014)

Economic science investigates how behaves the seller in its economic relations with society and the market environment.
A commercial inventive that often used the so-called "Sales Quota" as a basis for launching the salesman salary structure, be it specialized or not. The sales quota, is the physical or monetized amount that the sales agent must reach in order to justify their expenditures within the business organization, it has two sides:
Minimum sales quota, which is the physical or monetized amount representing the value of the equilibrium point that allows the seller to hold in the organization. This is calculated by defining approximate sales policies of the company, so an annual sales of the company and the number of sales agents estimated by the business strategy of the company and its projection in subsequent years is planned: 
For example, the Company determined that its annual gross sales in a fiscal year reached the sum of U$D 10 million, with 6 salesmen in the sales team, This allows us to assign an imaginary fee U$D 1,667,000 per annual business salesman.
The company has set a salary range for each sales agent fee as follows:
Fixed salary = 10% of the gross cost of sales = 10% TC
Salary Variable = 2% of the gross cost of sales = 2% TC
and defined the gross profit margin of the company (M) as follows:
Business Margin = 40% of total cost of sales (per seller) = 40% TC
Then the company sets its minimum quota per sales agent:
Gross Sales Personal (VBP) TC = TC + 40%TC + 10%TC + 2% TC
VBP = (1.52) CT.
Where TC is the total cost of sales of goods covering expenses, administrative and financial products per unit or per unit of service (measured in monetary units).
Thus, we have the previous example:
1,667,000 U$D = (1.52)* TC: 
TC = U$D 1,096,711
then we have:
Fixed salary (Sf) = 10% TC = U$D 109,671 annual gross
Variable salary = 2% TC = U$D 21,934 annual gross
thus, it is possible to offer a salary of balance made by a variable part and a fixed part of U$D 131,605 annual gross each seller agent (this means that in 12 months the seller agent can reach U$D 10,967.10)
Then a low monthly fee for each sales agent is:
Minimum Sales Quota = U$D 138,917.

How much you can reduce the sales quota assigned to the Seller Agent or Business Executive? 
The answer is simple, it is reduced by 2% which is the amount of their variable pay, unless that amount means that the company must reduce its gross margin (the fixed wage is agreed by legal contract and can not be reduced).   
From the example, the minimum sales quota that is required to meet monthly sales planned is U$D 136,139 per salesman,  obviously does not receive any variable salary.
And what is the maximum sales quota?
The truth should not be exist a high quota of sales, since this depends on the infrastructure and the line of business of the company; but now a new way to encourage the business executive or sales agent is necessary.
! No set Minimum quotas, You should set the  Maximum Wage ¡
Exactly, there is no better incentive to apply to the business executive or sales agent to achieve a profit for himself and his men, this means creating a business plan that involves the selling agent must reach an average salary per sales level.
Consider the following table where the business executive or sales agent is encouraged, to reach a salary level higher than USD  14,500 monthly, in 5 sections or levels as follows:
from 0-3 months 1st level of his personal development
from 4 to 9 months, the 2nd level of his personal development
from 10 to 15 months, the 3rd level of personal development
from 16 to 24 months, the 4th level of his personal development
and finally after 2 years of work, reaching the 5th level of personal development.
 The personal development of the business executive, who after two years of starting its work in the business, manages to see a total gross monthly salary of U $ D 14.678.92 allows you to:
- Improve living conditions
- Projecting the acquisition of movable or own property
- Access to higher financial credits
- Increase their economic conditions for personal, academic, and health improvements.
- Etc.
However, that has meant  the salesman personal growth, for the Company, look at the column for total sales of this agent: 
It has achieved in one (1) year sales growth of 10% more in favor of the Company, in more than two (2) years reaches 20% sales growth for the company. All this happens without changing the contract terms, but not-oriented to the personal sales quota, but, yes to the incentive of personal growth.
Otherwise, only generates dissatisfaction salesman and the company loses credibility to offer an interesting future to business executive, and seduces him to seek other opportunities, perhaps even in competition. Some companies to avoid this "leak Talent sales" provide other securities as bonus payments, comprehensive medical insurance, paid vacation, paid higher education; etc. However it is good to remember that those engaged in professional sales want to increase their personal income and therefore specialize and devote much of their lives to this activity.
"Sales Management" (Jorge Pareja).

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