Structuring a Multiproduct Sales Quota-Bonus Plan for a Heterogeneous Sales Force: A Practical Model-Based Approach

This paper presents an agency theoretic model-based approach that assists sales managers in determining the profit-maximizing structure of a common multiproduct sales quota-bonus plan for a geographically specialized heterogeneous sales force operating in a repetitive buying environment. This approach involves estimating each salesperson's utility function for income and effort and using these models to predict individual sales achievements and the associated aggregate profit for the firm under a specified plan. The utility function estimation is based on the salesperson's own preference rank-ordering of alternative sales quota-bonus plans. Once these functions have been estimated, they are incorporated in a mathematical programming model that the sales manager can use to determine the best plan. The authors demonstrate the approach in the context of a case involving the design of a two-product sales quota-bonus plan for a set of salespeople at a pharmaceutical products firm.