Question

You are the sales manager for Allied Specialty Products, which sells custom printed products to businesses in the Chicago market. The sales staff is currently being paid on 100% salary, with each sales representative earning $50,000 salary ( +25% benefits). The Chicago market has 20,000 potential customers, and each customer should be contacted twice per year (once in person and once on the phone). Total sales salaries and benefits for 2018 were $1,125,000. Each sales rep has clients all over the entire Chicago market - there are no defined territories - with new leads assigned to each sales representative on a rotating basis. (Your predecessor liked this approach, since if a sales rep quit, her/his customers could be assigned evenly to all remaining sales representatives until a new rep was hired.) The average sales call takes 20 minutes, and you are inheriting a sales staff of 17 sales representatives. Your boss has told you he wants to see sales increase but is unwilling to provide you with more resources. Some of your more effective sales reps have considered quitting because they feel like they could make more selling for other companies. Develop a strategy and a budget that will increase your sales. Be sure to indicate a) how you will be compensating sales reps, b) how many sales reps you will need, and c) how much you will be spending.

Answer 1

To increase sales, Allied Specialty Products should implement a commission-based compensation plan for sales representatives, assign approximately 17 reps to cover the entire market, and allocate budget for base salaries, benefits, and a commission structure.

Step-by-step explanation:

To increase sales for Allied Specialty Products, the company should consider implementing a commission-based compensation plan for the sales representatives. Combining salary with a commission structure will motivate the sales team to be more proactive in closing deals and reaching their sales targets. By offering a base salary plus a commission percentage on each sale, the sales reps will have the opportunity to earn more if they meet or exceed their quotas.

The number of sales representatives needed will depend on the workload and potential customer base. With 20,000 potential customers that need to be contacted twice per year, it is important to assess the capacity of each sales rep to handle a certain number of customers. If each sales rep is able to handle 1,200 customers per year (20,000/2/17), then the company would need approximately 17 sales reps to cover the entire market.

In terms of the budget, the company would need to allocate funds for the sales reps' base salaries, benefits, as well as the commission structure. To ensure that the sales reps' total compensation remains within the existing budget of $1,125,000, a portion of their salary could be converted into the commission structure. For example, the base salary could be reduced to $30,000 (+25% benefits) per sales rep, and the remaining $20,000 could be allocated towards commissions.