IDEAS home Printed from
   My bibliography  Save this article

An Investigation of the Equal Commission Rate Policy for a Multi-Product Salesforce


  • V. Srinivasan

    (Stanford University)


For a multi-product sales force, the policy of paying commissions as an equal percentage of realized gross margins is shown to be in general, nonoptimal from the firm's profit maximization point of view. For a homogeneous salesforce, the nonoptimality results from the fact that earlier research while taking into account the effect of commission rates on a salesperson's allocations of total time to the multiple products, has not incorporated the effect of commission rates on salesperson's total selling time (resulting from his/her trading off income vs. total time to maximize utility). The equal commission rate policy is, however, optimal for the cases of (i) salesperson with a fixed total selling time and a minimum income requirement and (ii) "fair-income" salesperson whose total selling time is merely a function of income (and not based on rate of change of income as in the utility maximization case). If the salesforce is heterogeneous (e.g., different salespersons have differing sales responses to selling time) this makes the equal commission rate policy to be, in general, nonoptimal even for the restrictive cases (i) and (ii). It is suggested that the commission rates be set higher for products with greater elasticities (relating quantities sold to selling times). The common practice of paying commissions as a percentage of total dollar sales (rather than gross margins) is shown to be optimal under certain assumptions.

Suggested Citation

  • V. Srinivasan, 1981. "An Investigation of the Equal Commission Rate Policy for a Multi-Product Salesforce," Management Science, INFORMS, vol. 27(7), pages 731-756, July.
  • Handle: RePEc:inm:ormnsc:v:27:y:1981:i:7:p:731-756

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Fabio Caldieraro & Anne T. Coughlan, 2007. "Spiffed-Up Channels: The Role of Spiffs in Hierarchical Selling Organizations," Marketing Science, INFORMS, vol. 26(1), pages 31-51, 01-02.
    2. Lee, Chung-Yee & Yang, Ruina, 2013. "Compensation plan for competing salespersons under asymmetric information," European Journal of Operational Research, Elsevier, vol. 227(3), pages 570-580.
    3. Abel P. Jeuland & Steven M. Shugan, 2008. "Managing Channel Profits," Marketing Science, INFORMS, vol. 27(1), pages 52-69, 01-02.
    4. Sijun Wang & Yuanjie He, 2008. "Compensating Nondedicated Cross-Functional Teams," Organization Science, INFORMS, vol. 19(5), pages 753-765, October.
    5. Fangruo Chen, 2000. "Sales-Force Incentives and Inventory Management," Manufacturing & Service Operations Management, INFORMS, vol. 2(2), pages 186-202, February.
    6. Albers, Sonke, 1996. "Optimization models for salesforce compensation," European Journal of Operational Research, Elsevier, vol. 89(1), pages 1-17, February.
    7. repec:eee:ijrema:v:31:y:2014:i:4:p:434-443 is not listed on IDEAS

    More about this item


    marketing; marketing: sales force;


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:27:y:1981:i:7:p:731-756. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc) The email address of this maintainer does not seem to be valid anymore. Please ask Mirko Janc to update the entry or send us the correct email address. General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.