Managing Sales Force Compensation

Abstract

There is a considerable debate on the question of direct sales force vis-à-vis reps. The convergence of direct sales force cost and commissions paid to reps is key in the initial decision to use direct sales force or reps based on an analysis to minimize total costs. The choice between direct sales force and independent reps can have a significant impact on the valuation of the organization. It is likely that an optimal point (of direct sales force and indirect reps) is reached where a specific “sales force structure” is adding the most value to the company, thereby resulting in higher valuation. The frameworks provided in this article will help managers of sales organizations faced with structuring decisions. The choice between a direct sales force and reps depends on many economic and non economic factors. The decision related to the use of direct sales force or reps should be investigated not only for their cost and return but also for the market dynamics, its sales range and reach in the market and the relative strengths of the reps.