Designing an incentive package that is mutually profitable to both the company and its sales representatives can be a real high-wire act. The company wants to hold onto collected funds to ease cash-flow management. Salespeople, understandably, want their commission as soon as they've closed a sale. Cindy Revenaugh hammered out a compromise that has helped propel her Chicago company's sales of pressure-sensitive label paper from $1 million to $14 million since 1987.
Channeled Resources, of which Revenaugh is vice-president, delays paying a portion of the rep's commission to accommodate the inevitable ups and downs of sales. "For example," explains Revenaugh, "if salespeople have a base target of $15,000 worth of label paper in a month but only sell $12,000, then the next month they must hit $18,000 in sales. They'll receive 25% of the profits they generate above $18,000." Sales representatives receive commission checks quarterly, but not for the total amount due from the prior quarter. "We give them half of what they earn from the most recent quarter, so if they don't make their numbers the following quarter, we're even. If they hit their numbers the second quarter, they get the second half of what they are owed from the first quarter, plus the first half on the most recent quarter. We catch them up at the end of the year."
The plan also helps keep salespeople loyal. If they quit, they lose whatever commissions are still owed to them in the coming quarter. "Since salespeople are immediate-gratification oriented, they'll work through a slump to receive a commission that's coming to them, rather than sacrifice it and start from scratch at another company," observes Revenaugh.