Sales bonus- how to calculate. Advice please.

[Mbrown]

Hello

Firstly thank you for taking the time to read this, I am looking for advise please regarding a sales bonus structure, I cannot seem to find a definitive answer anywhere, so I would be grateful for any advice or input you may have.

I work within a medium sized company and have developed a division within this company for which I am solely responsible for.
My employer has hinted toward a bonus scheme to be put in place but I am unsure as to how this is calculated.

Could somebody please tell me how a sales bonus is generally calculated? Is it based on the sales total, net total, net profit or is it determined after general business costs.

Also i realise this varies greatly but if anyone could give me an idea of a fair percentage for general sales bonus it would be very helpful.

One last question, would it be appropriate to expect a bonus for the profits I have already earned the company?

If anyone can give any advice on any if the above i'd very much appreciate it.

Thank you in advance
Morgana

 

[Paul_Rosser]

Hi Morgana,

it very much depends on the company you work for and the profit margins they work on, however most of the firms I've worked for offered their sales people a bonus based on anything above their target for a given period.

So if your target was 100k and you actually sold 120k of products, then your bonus would be paid on the 20k.

On the percentage side of things, this again really depends on the company, some pay their staff lower than average salaries and a better percentage, some pay market rate and then the percentage is lower.

You mention getting a bonus on previous sales, so guessing you already work for a company and they are talking about bringing in a bonus scheme, so doubtful they will pay it on past sales.

Hope this helps and I'm sure some UKBF members with more of a sales background than me will be able to expand.


Paul

 

[Billmccallum]

As a ballpark figure.....5% of profit over target.

Target £100,000
Profit £120,000
Bonus Level £20,000
Bonus Paid £1,000

But, as always, it varies depending on margins and turnover.

 

[Mbrown]

Hello again

Thanks so much for your replies

I think perhaps my boss is going down a more unconventional route. Basically I total up all orders as normal so there is a sales total, net price total, costings and net profit total.
I am just unsure as to which total (sales,net or net profit) a bonus would be calculated from. I did think that it would be worked out based on net profit but I just wanted to be certain.

Any further advice would be much appreciated, again!

Thank you

 

[justguy]

Rather than start with %age, an effective bonus system starts off with working out what you want to accomplish.

The simplistic answer is more sales but if you work backwards, you analyse the activity needed to generate sales and then you use part of the incentive to ensure the correct activities are undertaken.

It will also depend on how the staff's package is worked out. If they are on a healthy base salary, then the bonus is cream-on-top and can be used as such.

If the sales people are on a very low basic, and you want a long-term relationship with them, then the bonus scheme needs to ensure they are on a living wage as early as possible. Nothing distracts people like major financial worries. Thus, the bonus scheme might well kick in on 75% of target and run, via an accellerator system, thorugh the actual target and increasingly reward sales over target.

There are 1001 bonus schemes around and each will depend on your business needs, the product and staff you have plus the nature of the sales cycle. If you have lumpy sales and long lead times with complex closures, the bonus might need to be based on rolling sales or on a QTR basis.

To add complexity, also consider the issue of sandbagging - does your bonus scheme incentivise staff to hold off closing a sale till the next month as the bonus then will be higher than if they add it to the current month's sales. At the extreme, such activity can materially affect cash flow.

Sorry - not a simple answer. To be effective, the bonus system deserves careful thought and fit in with the business objectives and the type of environment the staff work in.

As an example of a demotivating approach, one company I know of automatically sets the next year's targets to be the sales achieved by the person the previous year. Where is the incentive for the sales person there to do their best or to stick around more than a few years if they are very good.