Sellmore Co. Case Study Assingment Analysis Help With Solution
The Sellmore Co. had become increasingly concerned about the inability of its sales force to generate sales from new business. The sales force of thirty is currently assigned to three regions in the Midwest, Northeast, and South. Each of the three regions has ten sales representatives assigned to that region. Each representative works off of a compensation system that is a combination of salary plus commission. At present the sales commission is 2.5% of all sales. The average sales person’s compensation package is currently made up of roughly 70% in base pay and 30% in commissions.
The company began to notice a significant drop in the level of cold calling and new business prospecting in the past twenty four months. An analysis of commissions earned during this period of time revealed that 80% were from existing business. Tom Driver, Sellmore’s sales manager, also noted that in any given day more sales representatives were in the office than out in the field. Driver was convinced that major changes to the compensation and performance evaluation system were needed in order to motivate the sales force and to begin to generate new business.
Driver developed the following proposal which was approved by Leo Sellmore, President of Sellmore:
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1. The commission system would be changed as follows:
• A commission of 4% will be paid on all new sales. This rate would be in effect for a 2 year period from the date of the first sale in order to encourage the sales force to “mine” additional new business from each new customer.
• The 2.5% commission for existing business will be reduced to 2.0%
• Base salaries will no longer be increased for merit raises based upon the annual performance review. Instead a “bonus system” will be used to compensate those who meet their sales quotas. These bonuses will be annual increases but not built into the base pay.
2. Each sales person will be assigned a targeted sales quota for both new and existing business.
3. At the end of each year, each sales person will be evaluated and ranked based upon their level of sales to both new and existing customers.
4. Each sales person will be required to make a minimum of 15 “cold calls” per month.
Nine months after the new plan was implemented a 10% increase in new sales had occurred but sales to existing customers was down over 20%. Worse yet, customer satisfaction scores had declined from 95% to 80% and complaints about poor customer service were increasing at an alarming rate.
Morale among the sales force seemed to be at an all time low, especially among the more senior sales representatives. In fact three of Sellmore’s most experienced sales reps recently resigned.
Needless to say Leo Sellmore was both extremely concerned about the deteriorating situation and equally perplexed about what had gone wrong with the new compensation and performance evaluation system for the sale reps.
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