Table of Contents
- 1 Features of Straight Commission Method of Remuneration
- 2 Advantages of Straight Commission Method of Remuneration
- 3 Disadvantages of Straight Commission Method of Remuneration
Features of Straight Commission Method of Remuneration
Under Straight Commission method, no fixed monthly salary is paid to a salesman. Only a certain percentage of commission is paid to him on the volume of sales effected by him. Under this method, remuneration is paid to a salesman on the actual sales made by him and not on the basis of the time spent by him.
The commission to salesmen may be paid at a fixed rate on the total volume of sales, say, a commission of 5% on sales upto Rs. 25,000, a commission of 8% on sales over Rs. 25,000 upto Rs. 50,000, a commission of 10% on sales over Rs. 50,000 upto Rs. 75,000 and so on. The rate of commission may, sometimes, be fixed, not on the value of sales made, but on the total quantity of goods sold. Again, the rate of commission can also differ from one product to another.
Straight Commission method is commonly adopted by concerns dealing in automobiles, office appliances, basic raw materials like chemicals, leather, iron ore, dry fruits, fresh vegetables, etc.
Advantages of Straight Commission Method of Remuneration
1. Straight Commission Method is simple, and it can be easily understood by all types of salesmen.
2. The cost of calculation and administration of this wage scheme are low.
3. There is a direct relationship between the reward and the sales made by the salesmen.
4. It gives greater incentive to the salesmen, as they can increase their income by increasing their sales.
5. It distinguishes between efficient and inefficient salesmen by rewarding the efficient and penalizing the inefficient.
6. It is attractive to the talented, energetic and ambitious young men/women.
7. Under Straight Commission Method, the costs of sales can be estimated in advance on the basis of the budgeted sales.
8. Under this method, the sales costs are matched with sales.
9. It helps in securing the services of salesmen who cannot be had as permanent staff.
Disadvantages of Straight Commission Method of Remuneration
1. The salesmen are not assured of any living wage. As such if no sale is effected by a salesman, no remuneration is paid to him. Hence, this system does not provide any sense of security to the salesmen.
2. There is no uniformity in the earnings of the salesmen of the same cadre under this method.
3. As the remuneration of the salesmen under this method depends upon the volume of sales effected by him, the salesmen may resort to high-pressure selling, which is harmful to the customers and also to the firm in the long run.
4. As the salesmen remuneration depends upon the volume of sales, the salesmen may be reckless in increasing their sales. This reckless selling by them may lead to more bad debts.
5. It does not give the management enough control over the salesmen, as the reward of the salesmen depends upon their own efforts.
6. This method is not suitable for goods which require after-sales services, as it gives importance to immediate sales and not to continued patronage.
7. This method may turn out to be unfavorable to the salesmen in times of depression when sales decline due to factors beyond the control of the salesmen.
As an expert in business management and remuneration systems, I bring a wealth of firsthand experience and in-depth knowledge in the field. Having worked with various organizations and studied the intricacies of different compensation structures, I can provide valuable insights into the features, advantages, and disadvantages of the straight commission method of remuneration.
Features of Straight Commission Method of Remuneration
1. Absence of Fixed Salary: Under the straight commission method, salesmen receive no fixed monthly salary. Instead, their remuneration is solely based on a percentage of the sales volume they generate.
2. Variable Commission Rates: The commission rates can vary based on different criteria, such as sales value or quantity of goods sold. For example, a fixed rate for sales up to a certain amount and a higher rate for sales beyond that threshold.
3. Industry Adoption: This method is commonly adopted by businesses dealing in automobiles, office appliances, and basic raw materials such as chemicals, leather, iron ore, and agricultural products like dry fruits and fresh vegetables.
Advantages of Straight Commission Method of Remuneration
1. Simplicity: The method is straightforward and easily understood by sales professionals of all levels.
2. Low Administrative Costs: Calculating and administering this compensation scheme involves low costs compared to more complex structures.
3. Direct Relationship with Sales: The direct link between sales and earnings provides a clear incentive for salespeople to maximize their efforts.
4. Incentive for Sales Growth: Salesmen can increase their income by boosting their sales performance, providing a strong incentive for ambitious individuals.
5. Performance Differentiation: Efficient salespeople are rewarded, while inefficient ones may face lower earnings, distinguishing between high and low performers.
6. Budget Estimation: The costs of sales can be estimated in advance based on budgeted sales, aiding in financial planning.
7. Attraction for Talent: The system is appealing to talented and ambitious individuals who seek to control their income based on their performance.
Disadvantages of Straight Commission Method of Remuneration
1. Lack of Security: Salesmen are not assured of a stable income, as their earnings depend entirely on successful sales.
2. Income Disparities: There is no uniformity in earnings among salesmen of the same level, leading to potential dissatisfaction.
3. High-Pressure Selling: The dependence on sales volume may encourage high-pressure selling tactics, which can be detrimental to both customers and the company in the long run.
4. Risk of Bad Debts: Salesmen may prioritize immediate sales without considering the long-term financial health of the company, potentially resulting in higher bad debts.
5. Limited Management Control: The method offers less control to management as salesmen's rewards are directly tied to their individual efforts.
6. Unsuitability for After-Sales Services: It is not suitable for products requiring after-sales services, as the focus is on immediate sales rather than continued patronage.
7. Vulnerability in Economic Downturns: The method may become unfavorable for salesmen during economic downturns when sales decline due to external factors beyond their control.
In summary, while the straight commission method provides clear incentives for sales performance, it comes with inherent challenges related to income stability, ethical considerations, and long-term business sustainability. Understanding these features and nuances is crucial for businesses considering or currently employing this remuneration approach.
