Sales Compensation per unit and per value of sales

Definition:

This KPI Class related to the amount of sales compensation (and its individual components) given per unit (or a piece) of sale or/ and per dollar of sale done

Business Objective behind this KPI:

Maximizing Sales Profitability and Minimizing Sales Cost.

Explanation & Specification

With reference to the business objective-

Sales cost is the costs related to the sales function. This is not 'Cost of Goods Sold'. Sales cost includes sales compensation, sales facilities & infrastructure cost, sales staff hiring & recruitment cost, advertising cost. Sales Profitability is a broad term and can have different definitions, depending upon what are you including in the profits (numerator) and the revenue (denominator). Typically sales profitability is linked to 'costs of good sold'+'Sales related costs'. It does not include the other costs like administration, IT, Research & Development. The objective of sales profitability is mainly to see on how we are managing our costs vs. our sales results. Both Sales cost and profitability have to be seen in context of each other.

With reference to the KPI-

Sales compensation is most important of the components of sales cost. Sales compensation includes following components:

• Sales Commission
• Sales bonuses
• Sales retainer-ship fee
• Sales Rewards

Sales compensation may include these secondary elements as well:

• Sales training allowance
• Sales out of pocket expenses

Sale includes

• Unit of sales (per piece)
• Revenue Value of Sale (per dollar)

All of the above are essentially the measures, and the details of these measures in given to the hyperlinks. As you will see each of these measures have got finer elements (for example sales revenue value can be defined differently). However, to understand this KPI, you may not right now need to go further. You can have Different KPIs, given the elements you want to include. For example,

• Sales commission per unit or per value of Sales
• Sales bonus per unit or per value of sale
• Sales retainer-ship fee per value or per unit of sale

Inclusions & Exclusions

In context of this KPI, you may like to have a cut, where you may not want to include (or give a lower weightage) the following kind of sales revenue. This is because very low or NIL sales effort goes into these sales:

• Automatic renewals of your services. For example subscriptions which get auto-renewed, unless the customer reverts with a cancellation.
• Long term contracts for supplies
• Customer submitting purchase order, without being approached.

In the Sales compensation, you may not like to include (or give a lower weightage) to the following elements:

Success factors for this KPI

There is a key element of the success drivers for this KPI- Optimizing Sale Compensation. You will find detail on these elements in the chapters 'Sales Compensation Management'.

Root Cause Analysis and interpretation

If the value of this KPI is low, it means that your sales compensation is not linked to your business results. There can be dozens of reason. Few key reasons could be:

• A greater part of your sales comp is fixed.
• You sales compensation has an over-doze of acceleration and end of the period bonuses (over and above the sales commission- which is generally transaction based)
• Your low performance slabs are not well-defined (for example you may have pegged 'no-commission'thresh-hold for minimum 10 sales a month, whereas it should have been 20. It means that the sales person will not get any commission if the sales is less than 20 units a month)

Measures-Facts associated with this KPI (Refer dimensional modeling in data Warehouse section)

• Sales Revenue
• Sales Compensation and its individual components
• Sales Units

Dimensions and some of their attributes (or cuts)over which you can slice and dice the KPI.

• Product
• Location
• Sales Channel
• Period

Direction of improvement

Optimize- This KPI needs to be well balanced. As you can see, this KPI is per unit of sale. Too low a value of this KPI may not be good, as it may be because you are selling very few units at very low compensation. If you have inordinately low sales compensation, you may not be able to retain the sales channel and its performance.

Industry Relevance - All

Functional Relevance

Sales & Distribution