An Investigation of the Equal Commission Rate Policy for a Multi‐Product Sales Force

Abstract

A number of researchers have examined the problem of designing a commission rate structure for a multi‐product salesforce in such a way that it is jointly optimal for both the salesperson and the firm, i.e. the rate structure simultaneously maximizes both the salesperson's earnings and the company profits. The problem is a very important one since in the U.S., for instance, approximately 70% of the companies say their salesforce at least partially on a commission basis. The use of commissions has the advantage of motivating the salesforce as well as decentralizing the selling effort allocation decisions to the salesperson who has more intimate knowledge of the market and the competition. The past research has divided the problem of designing the commission structure into two parts: (i) designing the average level of commission rates which influences the overall motivation of the salesperson and the total time he or she devotes to the selling task and (ii) the relative commission rates across products which affects the allocation of time to the many products. Most of the past research in this area has concentrated on the second problem.

Citation

Srinivasan, V. (1980), "An Investigation of the Equal Commission Rate Policy for a Multi‐Product Sales Force", Management Research News, Vol. 3 No. 3, pp. 7-19. https://doi.org/10.1108/eb027766