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Allocating Sales Force Effort with Commissions and Quotas

Author

Listed:
  • Otto A. Davis

    (Carnegie-Mellon University)

  • John U. Farley

    (London Graduate School of Business Studies)

Abstract

Quotas, commissions and mixtures of the two are widely used to control salesmen's activities both in terms of overall motivation and as decentralized means to direct allocation of effort over various products in the firm's line. Sales commission plans as allocation devices for a commission-maximizing sales force and a profit-maximizing central management generally turn out to be inadequate decentralized allocation devices in themselves, regardless of whether commissions are based on sales or on profit margins. A plan based on sales fails to reconcile the interests of salesmen and management, while a plan based on profit margins generally makes each salesman's income depend not only on his performance but on the performance of all other members of the sales force simultaneously. Further, information requirements about individual salesmen and markets appear so great that setting optimal quotas centrally is impossible for practical purposes. However, an interative quota generating procedure may be used to reconcile interests of salesmen and management, and yet maintain the desirable features of decentralised allocation consistent with the independent operation of the individual salesman.

Suggested Citation

  • Otto A. Davis & John U. Farley, 1971. "Allocating Sales Force Effort with Commissions and Quotas," Management Science, INFORMS, vol. 18(4-Part-II), pages 55-63, December.
  • Handle: RePEc:inm:ormnsc:v:18:y:1971:i:4-part-ii:p:p55-p63
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    File URL: http://dx.doi.org/10.1287/mnsc.18.4.P55
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    References listed on IDEAS

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    1. M. E. Salveson, 1956. "A Problem in Optimal Machine Loading," Management Science, INFORMS, vol. 2(3), pages 232-260, April.
    2. M. Beckman & R. Muth, 1956. "An Inventory Policy for a Case of Lagged Delivery," Management Science, INFORMS, vol. 2(2), pages 145-155, January.
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    Cited by:

    1. Donald G. Morrison & Jagmohan S. Raju, 2004. "50th Anniversary Article: The Marketing Department in Management Science: Its History, Contributions, and the Future," Management Science, INFORMS, pages 425-428.
    2. Mark Ferguson & V. Daniel R. Guide , Jr. & Gilvan C. Souza, 2006. "Supply Chain Coordination for False Failure Returns," Manufacturing & Service Operations Management, INFORMS, pages 376-393.
    3. Fangruo Chen, 2000. "Sales-Force Incentives and Inventory Management," Manufacturing & Service Operations Management, INFORMS, pages 186-202.
    4. Albers, Sonke, 1996. "Optimization models for salesforce compensation," European Journal of Operational Research, Elsevier, vol. 89(1), pages 1-17, February.

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