13 Importance and Objectives of Sales Compensation Plan (Explained)

Sales compensation is one of the key factors in motivating salespersons to achieve the sales and profits objectives of the firm. It retains field salespeople. good compensation prevents job dissatisfaction of salesmen.

importance and objectives of sales compensation plan
importance and objectives of sales compensation plan

Importance and Objectives of Sales Compensation Plan

The Importance of the sales compensation plan can be described under the following points:

1. Motivational Role

The sales compensation plan is an essential part of the total program for motivating sales personnel.

There are three motivational roles of sales compensation plan in this way:

  1. It provides a living wage.
  2. It adjusts pay levels to performance. It relates to job performance and rewards.
  3. It provides a mechanism for demonstrating the congruency between attaining company goals and individual objectives.

In brief, sales compensation plans are aids to, rather than subsidies substitutes for, effective motivation.

Related: 17 Key Features of an Ideal Compensation Plan (Explained).

2. Fulfillment of Sales and Growth Goals

A properly designed sales compensation plan fits a company’s special needs and problems, and from it flows attractive returns for both the company and its sales personnel. Sales and growth goals are reached at low cost and profit is satisfactory.

3. Effective Job Performance

When sales personnel receive high pay as a reward, it improves the job performance of a salesman. Also, Esprit de Corps is high.

4. Key to Behaviour

Compensation plan is the most widely used method of motivating a sales force.

It is the key to changing salespeople’s behavior.

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

5. To Implement the Marketing Plan

A close relationship exists between a company’s strategic marketing planning and its Salesforce compensation plan.

The compensation plan has a direct bearing on the successful implementation of the marketing plan.

To get salespeople to aid in successfully implementing the company’s strategic marketing plan, management needs to co-ordinate its sales compensation plans with the company’s goals.

6. To Correlate Efforts and Results with Rewards

The key to receiving rewards in most cases is getting results, that is performance or productivity.

Correlating efforts and results with rewards is an ideal that most companies constantly seek yet seldom achieve. 11 Advantages of Proper Selection Process (With Examples).

7. To Control Salespeople’s Activities

A good pay plan acts as an unseen supervisor of a Sales-force by enabling management to control and direct the sales men’s activities.

Today, this usually means motivating the salesman to ensure a fully balanced selling effort, that is, a total selling job.

8. To Ensure Proper Treatment of Customers

Companies will be increasingly competing on the basis of customer service.

sales compensation plan examples
sales compensation plan examples

A seller’s ability to maintain strong, long-term relationships with customers depends on providing customer service that results in a high level of customer satisfaction.

A good compensation plan is one that motivates salespeople to treat customers properly, thus providing customer satisfaction.

9. To Attract and Keep Competent Salespeople

A good pay plan helps a company build the quality of its Salesforce. It should also assist in attracting high-caliber salesman.

Finally, a proper plan should help to keep desirable people.

Related: 21 Benefits and Limitations of Personal Selling (Explain with Examples).

10. To Offset Selling Cost

It is possible to design compensation plan schemes which Allow selling costs to fluctuate in line with changes in sales revenue.

Thus, in poor years lower sales are offset to some extent by lower commission payments, and in good years increased sales costs are financed by higher sales revenue.

11. To Maintain Profitability

To maintain profitability a sales manager must design compensation plans that encourage salespeople to work efficiently.

12. Competitive Compensation

The compensation plans must be custom designed to not only meet the goals of individual firms but also provide competitive compensation packages to the Marketplace.

Related: Top 7 Powerful Techniques of Inventory Control for Stock Management.

13. To Earn More Money

It also shows that the natural Desire of salespeople to earn more money if left unabated could conflict with the firm’s need to control expenses.

Thus, now you know the importance and objectives of sales compensation plan.

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