Designs by Kate: The Power of Direct

Sales (Year 2011)

Group 1

Submitted By

Divyashree MBAA20057

Benzamin Taye MBA20325

Ashish Kapoor MBA20095

Dimpy Naik MBA20299

Abhishek Gautam MBA19166

Rudresh J MBA20053

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 Synopsis

Kate Creevey founded Creevay in 2005, which was involved in selling of low-cost
fashionable jewellery by direct sales method. There were sales representative’s who acted as
a middleman between DKB and customers. They had around 8000 sales representatives, most
of which are part time workers and are usually women ranging from 25-50 years of age. The
representatives earn a commission of 25% on per sale and the commission increase to 32% if
the sale exceeds $1000.

Case problem

There were two types of income. I.e. Income generated through sales and the other generated
by the salespeople. They were building their sales team and as their size increases their
income would decrease, so they ask the sales representatives to recruit their family and
friends but their were large overlapping between them which would result their sales volume
and commission.

Question 1. How much the average sales representatives earn in a year?

Question 2. How does this change as the sale representative remains with the company
over time?

 The average sales representative makes $648 per month.

 Representatives get a standard compensation of 25% of sales; however, if sales
surpass 10005, the representatives earn a fee of 32%.
 Being promoted inside the firm earns a higher percentage of commissions.
 The typical sales representative makes $648 in monthly sales.
 Assuming he is not a leader, manager, or director, the average sales representative will
be able to make $1944 in year one and $5159 by year five.

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 3. Let us consider 2 cases. In case one, we consider that a leader has at least one subordinate
from level 1. All the subordinates of manager and director are from the level one. This will
give them maximum commission.

This will cause them to have minimum commission. Manager will be having sub ordinate
from level 1,2,3 each and 2 from the level 4. Director would be having 1 sub ordinate from
level 1,2,3 each and 7 from level 4.

4. When a sales representative has started working in Design By Kate in 2006, the monthly
sale was $648, the year on year growth is 20% until 5 years. If a sales person started working
in 2010, the monthly sales would be $781. Yearly sales would be $9372. The earnings would
be $2343. Here, we are considering the sales representative don’t have any sub ordinates at
any level. If they do, it would change in accordance with the table below

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 Question 5. Compare the Commission dollars of a sales representative with $1000 in monthly
sales and no team with those of a leader with $1000 in monthly sales and 2 team members?

From Exhibit 1a, Base commission for sales representative with > $1000 worth of
sales/month is 32%

Case 1: A sales representative with $1000 in monthly sales and no team

So, Commission for sales rep. With no team would be

1000* 0.32 = $320

Case 2: A leader with $1000 in monthly sales and 2 team members

Base commission: 1000*0.32 = $320

Leadership dollars: (717.57*2)*0.05 = $71.76

(717.57*2= 1435.14, 1435.14*0.05 = $71.76, Reference Exhibit 1b)`

Base commission + Leadership dollars = $391.76

Sales per sales 2006 2007 2008 2009 2010 Average

representative($
)
Yearly 7776 8407 8465 9039 9367
Monthly 648 700.58 705.42 753.25 780.58
Leadership 64.8 70.06 70.54 75.33 78.06 71.76
dollar (Monthly)
Total 384.8 390.06 390.54 395.33 398.06 391.76

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 commission
(Monthly)

Question 6: Compare the commission dollars of a sales representative with $1250 in monthly
sales and no team with those of a Manager with $1250 in monthly sales and 3 level-one team
members and 2 level-two team members.

Case 1: Sales Rep. -

 $1250/month sales

 No Team members

Monthly sales $1250

Yearly sales $15000
Yearly earnings (32% of $4800
sales)

Case 2: Manager -

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 ● $1250/month sales

● Level 1 - 3 team members

● Level 2 -2 team members

Monthly Sales $1240

Yearly Sales $15000
Yearly earnings on its own sales (32% of $4800
sales)
Level 1- 3 member sales commission $150
Level 2-2 3 member sales commission $60
Total monthly commission from all levels $210
Total yearly commission from all levels $2520
Total yearly earnings $7320

Assumption - The sales representatives are generating $5oo/month

Comparing both the cases we can see an earnings difference of $2,520 annually

7. Discuss the importance of retention of sales representatives. If the attrition rate had
averaged 25% or 30% over the past five years how would this have impacted the total no
of sales representatives? Given that not all sales representatives are equal, how would this
impact revenues?

A First year representative generated $648 a month and yearly $7776

With an CAGR of 20% average the representative will account for $ 28304 in a 3 year
period and if he want to continue for 5 year then total sales will be $ 57865

If after 3 year he want to resign then there will be a loss for $12464 if the position is
replaced by new representative

And if the position is vacant then there will be loss of $ 57865- $ 28304 = $ 29561

Hence it is important to continue with the existing representative to minimize the loss.

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 During 2006 the attrition rate was 20%

CAGR= 87%

During mid 2006 there were more than 600 employees joined DBK

If the attrition rate is increased to 25% then the sales representative will decrease by 754

If the attrition rate is increased to 30% then the sales representative will decrease by 1508

For 20% attrition rate the total revenue for 5 year comes out to be $ 165,198,586

If the attrition rate increased to 25% from 20% the loss will be as much as $ 10,324,912

If the attrition rate increased to 30% from 20% the loss will be as much as $ 20,649,823

8. Evaluate the potential costs associated with the two options Creevey is considering.
Which option would you advise her to take?

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 Let us look at the 2 options available. The first option is to increase the longevity bonus. The
reasons for the choice of this option could be giving incentives to the leaders, managers and
directors can reduce the apprehension of the declining income. For the sales representatives
who have been loyal from day 1 and have spent a lot of their time in the organisation should
be given a bonus. Recognition mails, incentives can help increase productivity and gains
reducing the attrition rate.

The second option is to increase cash pay-out on sales. The leadership dollars will be
increased for the sales representatives which are promoted to become a manager. This would
encourage them to contribute more and concentrate on throughput. The commission dollars
for the sales representatives can be increased around 50% to increase the sales by making
them feel motivated. One constraint is that these can add up to the company’s fixed costs.

The best solution in this case is to go for a combination of both the options. Increasing the
incentives for the employees who have worked with the organisation for a really long time
can help with the declining sales numbers. Since they have stuck to the organisation this can
improve their retention rate while encouraging them to perform more. Even in case of option
2, increasing the commission dollars will indeed motivate the employees to do better.

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