For a commission based incentive plan, based on obtaining orders/circulations of products/consumer goods in bulk, here are some suggestions about when a particular commission plan type might be most beneficial:
A percentage of the first order/circulation
- The sales person influences the size of the first order, and a larger first order is both strongly desirable and indicative of the long-term value of the new customer relationship
- There is a fulfillment/retention channel separate from the new customer sales channel that is responsible for ensuring re-ordering and growth of the account. This could be a call center or a self-service online capability, for example. In this case, the sales person’s job is to get that first order, acquire new accounts – and another part of the organization takes it from there.
A percentage of each order/circulation
- The sales person is responsible for the first sale, the ongoing relationship, the growth of the account, or
- A team of sales people are working to take in as much transactional (not relationship-based) business as possible, and different people may sell to a given account at different times – for example, a call center with calls routed based on language or simply availability.
A fixed sum for the first order/circulation
- The first order generally results is a satisfied customer and repeat business
- The first order may be sold at a significant discount
- The sales person has little influence over the size of the order
- Any first order, regardless of size, takes about the same amount of work.
A fixed sum for each order/circulation
- The sales person has ongoing responsibility for processing orders/ transactions as quickly and efficiently as possible
- All orders have about the same value (profit) to the company
- The sales person has little influence over the size of an order.
By far, the most common sales incentive design is based on a percentage of each order. However, depending on the way you have designed your selling model, there may be good reason to measure and reward in one of the other three ways you mention.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.