16/10/2024

Lecture 7:

Organisation and Rewards

Learning Objectives
• Appreciate the advantages and disadvantages of different salesforce
organisation structures
• Compute the numbers of salespeople needed for different selling situations
• Understand the factors to be considered when developing sales territories
• Strike a balance between various sales compensation plans
• Establish priorities in relation to customers, travelling time and evolving call
patterns

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Purposes of sales organization

• Divide and arrange activities so the firm can benefit from specialization of
labor
• Provide for stability and continuity in firm’s selling efforts
• Provide for coordination of activities assigned to sales force and to
departments in the firm

Sales organization structure

• Horizontal – divides selling activities among sales force

• Vertical – assigns authority for specific sales management activities

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Horizontal structure of the sales force

• Company sales force or outside agents?
• Number and arrangement of sales forces?
• Geographical, product, customer, or functional assignments?
• Responsibility for selling to major (key) accounts?
• Foreign market sales and marketing?

Organisation structures
(a) Geographical structure

(b) product specialisation structure;

(c) market-centred structure;

(d) account-size structure

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Geographic and Product specialisation

structures

Customer-based organisational structures

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Telemarketing
• Form of organization by selling function
• Qualifying potential new accounts
• Servicing existing accounts quickly
• Seeking repeat purchases from existing accounts that cannot be covered
efficiently in person
• Providing quick communication of newsworthy developments

Mixed organisation structure

• Combination approach: Many companies adopt a mix of sales structures to
minimize costs and improve efficiency.
– Example: A two-product group structure with geographically based territories and
multiple salespeople per territory.
• Sales territory design: Balances call frequency with boundary definition, often
supported by computer systems for better accuracy.
• Blended sales forces:
– Big accounts: Key account specialists.
– Small/medium accounts: General territory reps, supported by product specialists.
• Sales manager’s challenge: Weighing financial, customer coverage, and
flexibility trade-offs, while addressing customer demands for total solutions
and value-added services.

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Organizing to Service Key Accounts

• Key account sales execs
– Business managers capable of managing key accounts
• Separate corporate division or sales force
• Team selling
– Salesperson or account manager leads the selling team and is responsible for
managing the overall customer relationship
– Matrix organization employs direct-reporting salespeople and supporting internal
consultants with specialized expertise
– Selling center or customer relationship team typically includes members from
diverse functional areas such as operations, finance, R&D, marketing…
• Multi-level selling – sales team consists of personnel from various managerial
levels who call on their counterparts in the buying organization

Vertical structure of the sales force

• Number of managers and sales management levels?
• Span of control?
• Managerial authority? (Hiring, firing, evaluation)

Span of control is dictated by managers and levels of management; the more of

these there are, the lower the span of control, and vice versa

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Span of Control
• Reduce span of control when:
– Sales task is complex
– Profit impact of each salesperson’s performance is high
– Salespeople are well paid and professional
– Also, at higher levels in the organization

Determining sales force size

• Territory design, workload method

Average number of calls per week per salesperson = 30

Number of working weeks = 43
Average number of calls per salesperson per year = 43 × 30 = 1,290
Sales force size = 47,000 / 1,290 = 37 salespeople

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Steps to Determine Sales Force Size by the

Workload Method

Total # hours
required to
service market
Total #
salespeople =
required
# Hours available
to each
salesperson

Sales territory design

• Proper territory design greatly impacts salespeople’s ability to perform well
and earn incentives.
• Faulty design can waste selling resources and harm salespeople’s attitudes
and effectiveness, leading to perceptions of unfairness.
• Satisfactory territory design leads to salesperson and sales unit
effectiveness.
• Advances in information technology can assist sales managers in creating
more efficient and fair territories.

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Sales territory design

• Two basic considerations
– Balance workload between territories
– Consider sales potential
• Sales territory should not be considered a permanent unit
– Change in consumer preference;
– Competitive activity;
– Diminution in the usefulness of chosen distribution channels;
– Complete closure of an outlet or group of stores;
– Increases in the cost of covering territories;
– Salesforce complacency.

Stages in Territory Design

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Compensation
• Used to motivate a salesforce by linking achievement to monetary reward
• Used to attract and hold successful salespeople by providing a good
standard of living for them
• Design compensation schemes, which allow selling costs to fluctuate in line
with changes in sales revenue
• Used to control activities

Compensation and sales volume

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Components and objectives of

compensation plans

Fixed salary plan

• Advantages
– Encourages salespeople to focus on all aspects of the selling function, not just quick
sales.
– Motivates salespeople to provide technical service, prospect new clients, and give
complete feedback.
– Offers stability with known monthly income
– Easier to administer, as there is no need to calculate commissions or bonuses
– Useful in solving attribution challeges in complex buying decisions involving multiple
DMU members and different salespeople across regions
• Disadvantages
– Lack of direct Incentives for high-performing salespeople
– Costs remain constant even if sales drop, limiting flexibility
• Best fit
– Most effective in industrial sales with high-value, low-volume products where sales cycles
are long

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Commission-only plan
• Advantages
– Provides strong incentive to sell
– Automatic cost control: Sales costs adjust with revenue, aligning with business performance.
– Targeted incentives: Higher commission rates can be used to push specific products or accounts.
• Disadvantages
– Salespeople may neglect non-sales activities like reporting and training.
– Focus on short-term goals at the expense of activities with long-term benefits
– Little financial security
– Pressure to close deals quickly can harm long-term relationships, especially in complex sales.
– Challenge to introduce team selling: Salespeople may resist teamwork to avoid sharing
commissions
– Potential for unethical practices: Can lead to exaggerated claims or unnecessary services
• Best Fit
– Works well for short sales cycles, large customer bases, and industries requiring minimal technical
support (e.g., insurance).

Salary-plus-commission plan
• Advantages
– Balanced financial incentives and income security
– Greater control over time allocation than commission-only systems.
– Sales costs also align more closely with revenue generation.
– Attracts ambitious salespeople who seek both income stability and the potential
to earn more through effort.
• Disadvantages
– Selling expenses are less predictable; may be difficult to administer
• Best Fit
– Suitable across diverse sales environments.

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Combination Plan
• Flexible Payment Structures: Commission can vary by sales level, product, or
profit margin; bonuses can reward specific goals.
– Extra payments can be tied to profits or sales, either at a fixed rate or only after
reaching a certain sales threshold.
– Payment rates may be consistent across all products or vary by product or
customer.
– Bonuses may also be awarded for achieving specific goals, such as meeting a
sales target or opening new accounts.

Combination Plan
• Questions to consider while designing the plan:
– What is the appropriate size of incentive relative to base?
– Should a ceiling be imposed on incentive earnings?
– When should the salesperson be credited with a sale?
– Should team incentives be used and how should they be allocated across
members of a sales team?
– How often should the salesperson receive incentive pay?

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Case study
• Refer to the case Rovertronics
• Groups representing consultancies competing to advise the company on its
business development strategy The consultancies’ proposals will be
evaluated on the basis of their responses to the three key areas
– Organisation
– Compensation
– Any other ideas to help the organisation realise its full potential

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