11 Key Factors Determining the Sales Compensation Plan (Explained)

A good sales compensation plan must treat all salespeople fairly. Nothing will destroy salespeople’s morale faster than a feeling that their pay is inequitable.

factors determining the sales compensation plan
factors determining the sales compensation plan

Factors Determining the Sales Compensation Plan

Many factors influence the remuneration plans of salesmen. Some of those are as follows:

1. Nature of Product

A product may be industrial or used by consumers.

A product with limited sales requires more effort by the salesman.

Thus, a higher rate of compensation will be paid to such a salesman.

Related: 18 Requirements of Good Sales Compensation Plan (Explained).

2. Price of the Product

If a product is sold in larger quantities due to its low price, a low rate of compensation will be paid to the salesman.

Here, the salesman would not require much effort to sell the product.

3. New Products

It is not easy to sell a new product. It requires to create demand and market for it.

Only skilled and Competent salesmen can create new demand for their creative talents.

A salesman with special abilities and experience will be successful in selling new products. Hence, he will be paid a higher rate of remuneration. 11 Advantages of Proper Selection Process (With Examples).

4. Financial Resources

The companies that have good sales, high profits and huge financial resources tend to pay higher compensation to their salesmen.

5. High Publicity

The companies that give more emphasis on advertisement and publicity may be able to create and maintain the demand for their products.

Hence, salesmen or not required to put more effort to sell products; they may be paid a lower rate of compensation.

6. Size of Market

When the size of the market for a product is limited.

Factors Influencing Salesmen Remuneration Plan
Factors Influencing Salesmen Remuneration Plan

The salesman dealing with the products in such a market will be paid more remuneration than those selling the product in a larger market.

Related: 15 Key Benefits of Sales Training or Coaching (Explained).

7. Competition

When the competition in the market is clean and cutthroat, a higher rate of remuneration will be paid to the salesman to motivate them to make efforts and to win over the competition.

8. Government Laws

The government regulates the wage structure of various Industries.

By enacting various acts and laws, the government determines minimum wages, dearness allowance, provident fund, pension and other benefits payable to the employees in certain jobs and industries.

Thus, government regulations also determine the compensation plans of salesmen.

9. Incentives Payable to the Salesman

Many companies pay various kinds of incentives such as different types of allowances, bonuses, housing facilities, educational allowance, moving allowance, car allowance, etc. In addition to regular wages.

The salesman is given various kinds of commission.

Such companies pay a low rate of compensation due to these perks given to the salesman.

Related: 13 Importance and Objectives of Sales Compensation Plan (Explained).

10. Ability of the Salesman

This is very clear that the educated, trained and experienced salesman are paid remuneration at a higher rate than those having low qualifications.

11. Wage Structure of Other Organisation

While determining the wage plans of the employees, the compensation rate being paid by similar kinds of organizations for similar jobs are also kept in view.

Otherwise, the salesman may leave the firms paying low remuneration, and join the other where one gets remuneration.

Thus, now you know the various factors determining the sales compensation plan.


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