CHAPTER $9-$ SALES FORCE COMPENSATION

FALCON ENTERPRISES, INC. $-$ Revising a Sales Force Compensation Plan

Overview: Falcon Enterprises manufactures and sells two types of cleaning machines for industrial users: a basic commercial vacuum cleaner and a more powerful extractor. VP of Sales Paluch and Sales Manager Fogarty are frustrated over the fact that their $10$ sales reps are not selling as many extractors as they would like. The extractor is a significantly higher margin item than the vacuum cleaners. Currently, Falcon Enterprises' annual sales total $$20$ million $-$ with about $$16$ million in vacuum cleaner

sales, and $$4$ million in extractor sales. This $80-20$ split concerns the sales executives, who feel that the percentages should be closer to $50-50.$

The current compensation plan is a straight commission plan, paying reps $6\%$ of the sales volume they generate.

Paluch and Fogarty have two additional concerns: $(1)$ low morale among the sales reps, and $(2)$ incomplete sales job being done by the sales reps.

Question $1(50$ points$)$: Make a specific recommendation for a new, better compensation plan for the Falcon Enterprises sales force.