Page 175 - Accounting Best Practices

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Commissions Best Practices
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8–12 SHOW POTENTIAL COMMISSIONS ON CASH REGISTER
The sales manager can have difficulty in motivating the sales staff to sell those
products with the highest margins. This is a particularly galling issue when there
are so many products on hand it is almost impossible to educate the staff about
margins on each one. Consequently, the sales staff sells whatever customers ask
for, rather than attempting to steer them in the direction of more profitable prod-
ucts, resulting in less-than-optimal corporate profitability.
A rarely used best practice is to itemize the commission rates salespeople
earn on individual products right on the cash register. When combined with a list-
ing of the commissions on a range of related products, the sales staff can quickly
scan the data, identify those that will make them the most money, and steer cus-
tomers toward them. Since the products with the highest commissions will pre-
sumably have the highest margins, this practice should result in higher company
margins. The tool can also be used to emphasize sales on products the company is
discontinuing and wishes to clear out of stock. Thus, by bring detailed informa-
tion to the sales staff which is also tied to sales incentives, a company can
increase its margins while also better managing its mix of on-hand products.
One problem with listing commissions on cash registers is that this approach
is only useable in a retail environment where salespeople ring up sales on the spot.
It would not be functional at all, for example, if a salesperson conducts multiple
sales calls on the road, though the concept can be modified by loading commission
rates by product into a laptop computer, which the salesperson can consult during
sales calls. Given the cost of a computer, however, this can be an expensive option.
Another issue is that the commission database will be a very complicated one,
especially if commissions on products are changed frequently, necessitating a list-
ing of commissions by both product and date. This can be a major programming
job, requiring significant computer resources. Finally, the cash registers must
include video display terminals of a sufficient size to show multiple products and
their commissions—if such terminals do not exist, all retail locations using the
system must be equipped with them, a significant extra expense. If these problems
can be overcome, however, the posting of product commissions on cash registers
can lead to a major improvement in corporate profitability.
Cost: Installation time:

TOTAL IMPACT OF BEST PRACTICES
ON THE COMMISSIONS FUNCTION

This section describes the overall impact of best practices on the commissions
function. The best practices noted in this chapter have an impact on three major
accounting activities, as noted graphically in Exhibit 8.2. They impact the moti-
vation of sales personnel, the calculation of commissions, and their payment. The