Question

You are the manager of Door-to-Door Vacuum Cleaners, Inc. Each salesperson is paid a base salary plus a percentage of the revenues she or he generates. In addition, each salesperson drives his or her car to and from each sales call and is reimbursed $0.40 per mile driven. On average, each salesperson drives about 150 miles per day and 240 days per year. As manager of Door-to-Door, how might you restructure the compensation of your sales force to enhance your profits? Are there any potential disadvantages of your plan? Explain.

Answer 1

Each salesperson drives 150 miles which costs the manager $60 per day (150*0.40). For 240 days per year goes to 60*240= $14400 for a year for a single person. This amount has to be multiplied with the number of employees present in the firm. If a person is spending so much on fuel, I will restructure the compensation in such a way that the number of trips done and the actual sales percentage is high, otherwise they will be paid minimum compensation. The sales percentage has to be above 50% in order to get sufficient revenue share of the sales. The company will also garner more profits as the sales force is trying to increase revenue. The disadvantages of this plan might be that the person might opt for the minimum sales which are to be done as he is getting fixed percentage share of the profit which is minimum and might not like to increase the sales percentage from his trips as he is also getting a base salary. The manager will have to motivate constantly in order to get the maximum results from its sales force.