Sales Management 12Sales Management 12

Motivation and RewardsMotivation and Rewards

MotivationMotivation

Motivation: Intrinsic vs. Motivation: Intrinsic vs. ExtrinsicExtrinsic

When When rewards rewards

such as pay such as pay and formal and formal recognition recognition

act as act as motivatorsmotivators

When doing When doing the job is the job is inherently inherently motivatingmotivating

IntrinsicIntrinsic ExtrinsicExtrinsic

Noncompensation rewards:Noncompensation rewards:Those beneficial factors related to the Those beneficial factors related to the work situation and well-being of each work situation and well-being of each salesperson.salesperson.

Two Basic Categories of Two Basic Categories of RewardsRewards

Compensation rewards:Compensation rewards:Those given in return for acceptable Those given in return for acceptable performance or effort. They can include performance or effort. They can include nonfinancial compensation.nonfinancial compensation.

Types of Sales Force Types of Sales Force RewardsRewards

MotivationMotivation

_________

_________

PayPay

PromotionPromotion

Sense of Sense of AccomplishmentAccomplishment

Personal Growth Personal Growth OpportunitiesOpportunities RecognitionRecognition

Job securityJob security

Aptitude:Aptitude:

Enduring personal Enduring personal _________that that determine individual’s overall determine individual’s overall ability to perform a sales jobability to perform a sales job

VariablesVariables IntelligenceIntelligence Cognitive AbilitiesCognitive Abilities Verbal IntelligenceVerbal Intelligence Math AbilitiesMath Abilities Sales AptitudeSales Aptitude

PersonalityPersonality Enduring personal traits that Enduring personal traits that

reflect an individual’s reflect an individual’s _________ _________to situations encountered to situations encountered in the environment.in the environment.

VariablesVariables ResponsibilityResponsibility DominanceDominance SociabilitySociability Self-EsteemSelf-Esteem Creativity/FlexibilityCreativity/Flexibility Need for Achievement/Intrinsic Need for Achievement/Intrinsic

RewardsRewards Need for Power/Extrinsic RewardsNeed for Power/Extrinsic Rewards

SkillSkill Individual’s Individual’s learnedlearned _________at at

performing necessary tasks.performing necessary tasks. NB: Skills can be trained!NB: Skills can be trained! VariablesVariables

Vocational skillsVocational skills Sales Presentation skillsSales Presentation skills Interpersonal skillsInterpersonal skills General ManagementGeneral Management Vocational EsteemVocational Esteem

Sales Role PerceptionsSales Role Perceptions

Role Role _________: _________: Knowing what is expectedKnowing what is expected

Role Role _________: _________: Incompatible demands from Incompatible demands from different role partners (firm, boss, customer, family)different role partners (firm, boss, customer, family)

Role Role _________: _________: Believe that they don’t know Believe that they don’t know what is expected, how they should meet what is expected, how they should meet expectations, or how they will be evaluated & expectations, or how they will be evaluated & rewardedrewarded

Sales Role Perceptions II:Sales Role Perceptions II:ConsequencesConsequences

Role Inaccuracy, Conflict, and Role Inaccuracy, Conflict, and Ambiguity lead to:Ambiguity lead to: DissatisfactionDissatisfaction Mental AnxietyMental Anxiety Salesperson TurnoverSalesperson Turnover AbsenteeismAbsenteeism Poor Job PerformancePoor Job Performance

Sales Role Perceptions III:Sales Role Perceptions III:ImprovementImprovement

Close (not stifling) supervisionClose (not stifling) supervision

TrainingTraining

Salesperson experienceSalesperson experience

Include salesperson when Include salesperson when

establishing expectationsestablishing expectations

Sales QuotasSales Quotas

Goals assigned to salespeople Goals assigned to salespeople for specific time period.for specific time period.

Three PurposesThree Purposes _________salespeople_________salespeople _________performance_________performance _________salespeople’s effort_________salespeople’s effort

Problems with QuotasProblems with Quotas

Not apples/applesNot apples/apples Different levels of difficulty in Different levels of difficulty in

territoriesterritories May be tough to apply to teamsMay be tough to apply to teams Can be expensive to establishCan be expensive to establish If not done well, may focus efforts If not done well, may focus efforts

too much in one area.too much in one area.

Characteristics of Good Characteristics of Good QuotasQuotas

__________________ Motivation requires reasonable Motivation requires reasonable

chance of attainmentchance of attainment

Easy to _________Easy to _________ Too complex Too complex suspicion and suspicion and

mistrustmistrust

__________________ Cover all criteria to avoid imbalanceCover all criteria to avoid imbalance

Types of QuotasTypes of Quotas

VolumeVolume Units, Dollars, PointsUnits, Dollars, Points

ActivityActivity # cold calls, proposals, displays, # cold calls, proposals, displays,

service calls, meetings, collections, service calls, meetings, collections, demonstrationsdemonstrations

FinancialFinancial Expenses, Gross Margins, Net ProfitExpenses, Gross Margins, Net Profit

How to Set QuotasHow to Set Quotas VolumeVolume

HistoryHistory Territory PotentialTerritory Potential

ActivityActivity Sales reps and managers; sales Sales reps and managers; sales

reports; researchreports; research FinancialFinancial

Based on financial goals of firmBased on financial goals of firm Adjust to meet needsAdjust to meet needs

Performance CriteriaPerformance Criteria

Total Sales Volume; Increase over last Total Sales Volume; Increase over last year.year.

Percentage of Quota Attainment.Percentage of Quota Attainment. Selling Expenses; Decrease from last Selling Expenses; Decrease from last

year.year. Profitability of sales; Increase over last Profitability of sales; Increase over last

yearyear New AccountsNew Accounts Improved administrative duties Improved administrative duties

(paperwork)(paperwork) Improvements in customer serviceImprovements in customer service

RewardsRewards Money: salary, bonus, commissionMoney: salary, bonus, commission PromotionPromotion Non-financial: (Contests, travel, prizes, Non-financial: (Contests, travel, prizes,

etc.)etc.) Special Recognition (clubs, awards, Special Recognition (clubs, awards,

etc.)etc.) Job securityJob security Feeling of self-fulfillmentFeeling of self-fulfillment Feeling of worthwhile accomplishmentFeeling of worthwhile accomplishment Opportunity for personal growth and Opportunity for personal growth and

developmentdevelopment Opportunity for independent Opportunity for independent

thought/actionthought/action

MotivationMotivation

Motivation leads to effort.Motivation leads to effort. Effort leads to performance.Effort leads to performance. What leads to motivation?What leads to motivation?

MotivationMotivation

Expectancy Instrumentality Valence Motivation

Unmotivated

Yes HighYes

No No Low

Expectancy Theory

Expectancy TheoryExpectancy Theory ExpectationExpectation

Effort Effort _________

InstrumentalityInstrumentality _________ Reward Reward

ValenceValence Reward has Reward has _________

Must have all 3 to be motivated!Must have all 3 to be motivated!

ExpectationExpectationMust expect thateffort will lead toperformance outcome

Practice ≠ Jimi Studying = Knowledge

InstrumentalityInstrumentalityResults must beinstrumental inachieving reward

ValenceValence

Low Valence High Valence

Expectancy Theory in SalesExpectancy Theory in Sales If I make ten cold calls/day, I will get If I make ten cold calls/day, I will get

2-3 new customers per week, leading 2-3 new customers per week, leading to higher sales.to higher sales.

If I get 2-3 new customers/week and If I get 2-3 new customers/week and have higher sales, I will make more have higher sales, I will make more commi$$ion$.commi$$ion$.

I like money. I want to make more, so I like money. I want to make more, so I am motivated to make the cold calls.I am motivated to make the cold calls.Note: People have different values, so they Note: People have different values, so they are motivated by different rewards.are motivated by different rewards.

Major IssuesMajor Issues People have different personal People have different personal

characteristics and different characteristics and different valances for various kinds of valances for various kinds of rewards.rewards.

Ideally want to have unique Ideally want to have unique compensation program for each compensation program for each person.person.

It ain’t gonna happ’n!!!!It ain’t gonna happ’n!!!! Too complex to administerToo complex to administer Question of fairnessQuestion of fairness

Changes over timeChanges over time Need to update continuouslyNeed to update continuously

Designing a Compensation Designing a Compensation PlanPlan

Compensation plan is intended to have Compensation plan is intended to have the sales force do what management the sales force do what management wants, how it wants it, and within the wants, how it wants it, and within the desired time.desired time.

First, need to decide what it is that First, need to decide what it is that management wants.management wants.

Assessing Assessing Situation/ObjectivesSituation/Objectives How are salespeople allocating How are salespeople allocating

time?time? How good are the current How good are the current

outcomes?outcomes? Job AnalysisJob Analysis Recruitment and selectionRecruitment and selection Company recordsCompany records Company marketing & sales Company marketing & sales

objectivesobjectives Account managementAccount management

What do you reward?What do you reward?

Performance outcomesPerformance outcomes BehaviorsBehaviors Need to align the sales forces’ Need to align the sales forces’

objectives with that of the objectives with that of the company.company.

Can strive to achieve multiple Can strive to achieve multiple objectives, but not too many at objectives, but not too many at once.once.

Use mixed-incentive planUse mixed-incentive plan

Behaviors & Activities to Behaviors & Activities to RewardReward Higher $ volume Higher $ volume

salessales Increase sales of Increase sales of

more profitable itemsmore profitable items Push new productsPush new products Higher penetration: Higher penetration:

products, customersproducts, customers Larger average order Larger average order

sizesize New customersNew customers

Service/Maintain Service/Maintain existing customersexisting customers

Retain customersRetain customers Encourage team Encourage team

cooperationcooperation Balanced (full-line) Balanced (full-line)

sellingselling Lower sales costsLower sales costs Increase callsIncrease calls Prompt paperworkPrompt paperwork

ValanceValance

Need to determine what drives the Need to determine what drives the current sales force at this time.current sales force at this time.

SurveySurvey Conjoint analysisConjoint analysis Managers don’t necessarily have Managers don’t necessarily have

an accurate perception of their an accurate perception of their salespeople’s valances for different salespeople’s valances for different rewardsrewards..

Appropriate Compensation Appropriate Compensation MixMix Determine gross amount Determine gross amount

necessary to attract, retain, and necessary to attract, retain, and motivate right type of salespeople. motivate right type of salespeople.

Then allocate to salary, Then allocate to salary, commission, bonus, benefits, commission, bonus, benefits, prizes.prizes.

Varies with type of sales job, size Varies with type of sales job, size of company and sales force, and of company and sales force, and policies.policies.

What do competitors pay?What do competitors pay? Pay low, high, or average?Pay low, high, or average?

Dangers of Paying Too Dangers of Paying Too MuchMuch Increases selling costs Increases selling costs lowers lowers

______

Can cause Can cause _________and low and low _________among non-sales among non-sales employees and managersemployees and managers

Not necessarily a motivatorNot necessarily a motivator MaslowMaslow Prospect TheoryProspect Theory

Dangers of Paying Too Dangers of Paying Too LittleLittle You get what you pay for.You get what you pay for.

Attract only weak peopleAttract only weak people Leads to poor resultsLeads to poor results

High turnover, especially among High turnover, especially among good people. Only the less good people. Only the less capable will stay.capable will stay. Leads to higher costs for recruiting, Leads to higher costs for recruiting,

and training.and training. Lost salesLost sales Managers always recruiting and hiringManagers always recruiting and hiring

Compensation Compensation ComponentsComponents

__________________

__________________

__________________

__________________

_________ __________________ _________

Compensation: Compensation: CommissionCommission Payment based on short-term Payment based on short-term

resultsresults Usually a % of $ sales, or $/volumeUsually a % of $ sales, or $/volume Direct link between performance Direct link between performance

and paymentand payment Motivates high level of selling Motivates high level of selling

efforteffort Encourages sales successEncourages sales success

Compensation: SalaryCompensation: Salary

Fixed sum of money paid at set Fixed sum of money paid at set intervalsintervals

How most of the country is paidHow most of the country is paid Function of experience, competence, Function of experience, competence,

tenure, past performancetenure, past performance Motivate effort on non-sales activitiesMotivate effort on non-sales activities Adjust for differences in territory Adjust for differences in territory

potentialpotential Motivate investment in long-term Motivate investment in long-term

salesale

Compensation: Incentive/BonusCompensation: Incentive/Bonus

Additional commission tied to sales Additional commission tied to sales or profitability (e.g. + 1% after or profitability (e.g. + 1% after $2,000,000)$2,000,000)

Bonus for meeting or exceeding Bonus for meeting or exceeding targettarget

Direct effort to strategic objectivesDirect effort to strategic objectives Provide additional rewards to top Provide additional rewards to top

performersperformers Encourage sales successEncourage sales success

Compensation: Sales Compensation: Sales ContestsContests Encourage extra effort at specific Encourage extra effort at specific

short-term objectivesshort-term objectives Can offer: Can offer:

CashCash Merchandise Merchandise (TV, Car, Shopping, Golf, (TV, Car, Shopping, Golf,

Dinner)Dinner) Travel Travel (Can also be a team building event)(Can also be a team building event)

Offer multiple opportunities for prizesOffer multiple opportunities for prizes Needs to be achievable to be Needs to be achievable to be

motivatingmotivating Cannot be too easy, or won’t be Cannot be too easy, or won’t be

motivatingmotivating

Compensation: BenefitsCompensation: Benefits

Health insurance, sometimes Health insurance, sometimes disability and life insurancedisability and life insurance

Pension planPension plan Not everyone offers, especially if Not everyone offers, especially if

contract (real estate agent) or contract (real estate agent) or manufacturer’s repmanufacturer’s rep

Salespeople are then forced to buy Salespeople are then forced to buy plans through professional plans through professional associationsassociations

Provides security, especially Provides security, especially important to people with families, important to people with families, or getting olderor getting older

Compensation PlansCompensation Plans

Straight SalaryStraight Salary

Straight CommissionStraight Commission

Combination Plan (most common)Combination Plan (most common)

Straight SalaryStraight Salary If non-short-term sales goals are If non-short-term sales goals are

importantimportant If difficult to measure individual’s If difficult to measure individual’s

contribution to the sales effort contribution to the sales effort (missionary, team selling)(missionary, team selling)

Provide salespeople with steady Provide salespeople with steady incomeincome

Easy to manage and administerEasy to manage and administer

$ not tied to performance$ not tied to performance Lowers/clouds instrumentalityLowers/clouds instrumentality No motivation to performNo motivation to perform

Straight CommissionStraight Commission Direct link between selling and Direct link between selling and

rewardreward MotivatingMotivating

Inherently fair: rewards to best Inherently fair: rewards to best performersperformers

Usually easy to compute/administerUsually easy to compute/administer Vary directly with sales volume & $Vary directly with sales volume & $

Lose control over sales forceLose control over sales force No motivation for non-selling No motivation for non-selling

activitiesactivities Milk existing customers, no serviceMilk existing customers, no service

Unstable income, tough to predictUnstable income, tough to predict Can establish draw, but may be deep Can establish draw, but may be deep

holehole

Combination PlansCombination Plans

Most common form of compensationMost common form of compensation Smaller commissions, but with base Smaller commissions, but with base

salarysalary Can also offer bonuses for reaching Can also offer bonuses for reaching

target (e.g. % of quota)target (e.g. % of quota) Can manipulate (not often, or too Can manipulate (not often, or too

much) to motivate performance or much) to motivate performance or activitiesactivities

Gives salespeople both security and Gives salespeople both security and incentive to work hard and performincentive to work hard and perform

Other IssuesOther Issues

Appropriate size of incentive/base Appropriate size of incentive/base (25%+)(25%+)

Incentive Ceiling: Incentive Ceiling: Arguments on both Arguments on both sidessides

When is a sale a sale?: order acceptance, When is a sale a sale?: order acceptance, allowances or returns, shipment, payment?allowances or returns, shipment, payment?

Group incentive? Allocation? Group incentive? Allocation? Can pay Can pay both group and individual components: both group and individual components: Linkages Linkages

How often to pay incentive? How often to pay incentive? Monthly Monthly (52%), Quarterly (24%), or Annually (21%)(52%), Quarterly (24%), or Annually (21%)

Sales ContestsSales Contests Clearly define and specify the Clearly define and specify the

objectivesobjectives Have an exciting Have an exciting _________ Have a Have a ________ __________that that

most/all salespeople can win a most/all salespeople can win a prize.prize.

_________prizesprizes Promotion and follow throughPromotion and follow through

_________salessales Hurt Hurt _________& & _________ Necessary if good compensation Necessary if good compensation

plan?plan?

Non-Financial RewardsNon-Financial Rewards

PromotionPromotion Career DevelopmentCareer Development Valence declines with ageValence declines with age Add perquisites (perks) with Add perquisites (perks) with

position:position: CarCar Better working conditions (hours, Better working conditions (hours,

facility)facility) Compensation, Profit-sharingCompensation, Profit-sharing