Houston Fearless

In: Business and Management

Submitted By ywang123
Words 643
Pages 3
The HF76 wants to revamp its sales incentive plan. The advantage of the old incentive plan is maintaining its original market share and volume of sales to assure certain amount of revenue. However, the plan does not meet the company’s strategy, which is opening the new market, gaining more shares in the lucrative markets, and increasing the accuracy of forecasts. In this essay, through addressing the pros and cons of the new incentive plan, I offer some recommendations to the new incentive plan to increase accuracy of forecast and slow the increase of commission and ultimately to make the salesperson care about the selling expense.

The new incentive plan is introduced in order to tackles these three problems by providing commissions on product gross margins, promising an extra bonus on accuracy of the sales forecasts, and offering a bonus on the achievement of MBO targets. However, the new incentive plan brings some new problems. There are four downsides of this plan. Firstly, no commission will be paid until gross margins exceed 70% of the forecast. It is totally unfair to sales representatives taking care of the low gross margin products. Secondly, in order to receive the extra bonus, sales persons of low gross margin products will be inclined to move this year’s sales to next year or vice versa. Others associated with products whose gross margin exceed 70% tend to ignore the accuracy of the forecast due to the little amount of bonus based on 5% of their salary other than commission. Thirdly, the cost of implementing this plan could be insurmountable. When the sales staffs meet the 70% requirements, the commission could be punishingly high to the company.

The biggest issue of this incentive plan lies in its percentage-oriented nature. Gross margin equals gross profit divided by sales. It neglects period costs such as selling and administrative expenses.…...

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