Sales Commission -- Effect on Throughput

Continuing our cash velocity discussion started on March 16, 2007
We last left off on Friday April 6, 2007.

Deceasing sales commission is not necessarily where we want to focus either, but make sure that the commission you’re paying is in alignment with where you’re making your money and/or with the products/services with the highest cash velocity. If you have varying T/CU[1] across your products/services, but you are paying sales people a commission on selling price or gross margin, you may not be motivating them to sell the products that provide the highest throughput for the least amount of your most precious resource. In addition, the traditional way of paying sales people does not take into account the cash velocity either. The ideal commission structure would motivate sales people to sell the highest T/CU combined with the best velocity products/services.

[1] Thoughput per Constraint Unit. This is the amount of money you generate on a sale divided by the amount of your limited resources capacity consumed in order to produce the sale. See Throughput Accounting as part of Goldratt's Theory of Constraints.

... to be continued ...

Here's to maximizing YOUR profits!
"Dr Lisa" Lang
(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.