As labor costs rise and operating margins decline, trading companies are placing greater emphasis on compensation design. For employees, compensation provides economic security, motivates work drive, reflects personal value, and promotes career development. For distributors, it helps attract and retain talent, improve work efficiency, foster team collaboration, and enhance corporate image. We can also say that the compensation system is a vital link between the trading company and its employees. Today, I will share compensation models I've learned from visiting several trading companies in recent years. Let's first look at a compensation case. Below is a compensation system from a trading company. We'll first examine the changes before and after the improvement plan, then analyze it. Before the overhaul: Sales volume had little impact on income, team motivation was low, most staff sold around 60,000 yuan per month, and the distributor suffered heavy losses. After the overhaul: Higher sales led to higher income for salespeople, with greater income disparity, the sales team worked hard, and average per-person sales stabilized at around 120,000 yuan! Let me provide some background. The distributor's main business was a trading company in a county under a prefecture-level city. After achieving success there, they expanded to the prefecture-level city, established a new team, and continued using the previous salary model. We can clearly see that in the original assessment plan, the salary differences among salespeople were not significant. The income difference between monthly sales of 50,000 yuan and 200,000 yuan was less than 3,000 yuan, which hardly inspired team enthusiasm. Indeed, when I accompanied his salespeople, I noticed they frequently checked the time after 4 PM and left promptly at 5 PM. The team was habitually mediocre and lifeless. After switching to the profit-sharing model, the income difference between monthly sales of 50,000 yuan and 200,000 yuan approached 10,000 yuan. Those who were just going through the motions could no longer survive, while capable and driven individuals gave their all. Within three months, average per-person sales doubled to 120,000 yuan, with strong growth momentum. Employee income rose, distributor profits increased, and everyone showed great potential. Once unleashed, that power is unimaginable. It's worth emphasizing: There is no inherently good or bad compensation model—only what fits or doesn't fit. Different market conditions, competitive landscapes, city tiers, and personnel situations all affect the effectiveness of a compensation system. Therefore, adapting to local conditions is crucial. Next, I'll share several compensation models. Commission Model: Base Salary + Commission + KPI This model is familiar to many; many trading companies (where employees are in an employment relationship) have been using it, but in recent years, some excellent trading companies have improved it (KPI will be discussed later).

  1. Lower commission for existing volume, higher commission for incremental volume. For example: A salesperson sold 1,000 units in February last year. This February, commission is 1.5 yuan per unit for the first 1,000 units, and 2 yuan per unit beyond that.
  2. Design tiered commission: Commission = Commission Standard * Achievement Coefficient (capped at 120%). For example: Commission is 10 yuan per unit. If distribution achievement is 80%, commission = 10 * 80% = 8 yuan. If distribution achievement is 110%, commission = 10 * 110% = 11 yuan, capped at 12 yuan per unit.
  3. Distribution linked to base salary, profit linked to commission. For example: In June, a salesperson's distribution task is 250,000 yuan, profit target is 50,000 yuan, base salary is 2,500 yuan, and commission base is 5%. If both targets are just met, income is 5,000 yuan. Advantages:
  • Makes salespeople focus more on sales volume;
  • High income transparency, visible in real-time with sales, providing immediate incentive;
  • Different products have different commissions, facilitating promotion of key products;
  • Simple calculation, convenient for distributors and employees to reconcile accounts. Disadvantages:
  • Employees focus only on immediate sales, neglecting expenses and profits, leading to situations where employees earn high incomes but distributors don't profit;
  • Not conducive to expense management; expenses are more focused on sales volume rather than sell-through, leading to zombie displays with no movement;
  • Not conducive to age-of-stock management; commissions are calculated monthly, but costs from expired products typically lag by 3-4 months, so employees don't pay enough attention. Profit-Sharing Model: Base Salary + Profit Share + KPI This model is common in trading companies with regional contracting, where employees are partners. It's important to emphasize: Area contracting is not about replacing management with contracting, but turning management into incentives to stimulate frontline employees' initiative (KPI will be discussed later).
  1. Intensive areas: Profit share + KPI. Intensive areas are the distributor's strong regions. Some distributors eliminate the base salary for frontline staff and directly assess profit. For example: A trading company directly tells employees that their income is 40% of the gross profit margin from price differences, which includes delivery fees, loading/unloading fees, and costs for handling old-date products.
  2. Non-intensive areas: Base salary + profit share + KPI. Non-intensive areas are weaker regions. Without a base salary, long-term team stability is hard to maintain. Some distributors design a base salary of 2,000-3,000 yuan, but the profit share from price differences is relatively lower, maybe around 15%. This also includes delivery fees, loading/unloading fees, and old-date handling costs, encouraging frontline staff to develop the area quickly and achieve the first compensation model.
  3. One-step price difference: In some relatively mature areas, distributors and salespeople have a buyer-seller relationship. The distributor sets a price for salespeople and outlets to pick up goods, based on their own shipping price and operating costs (warehousing, back-office staff, etc.), allowing them to operate independently. For example: A salesperson pays 100 yuan per unit to the distributor, and the suggested outlet pickup price is 110 yuan per unit. The 10 yuan price difference covers the total operating costs of the area contract. Advantages:
  • Makes employees focus more on profit, costs, expenses, and other operational indicators.
  • Profit share = sales volume * unit profit. The higher the unit price sold, the more high-end products sold, the higher the profit share.
  • Cost = distributor's payment to manufacturer minus channel promotional allowances.
  • Expenses = capital costs (addressing credit sales and accounts receivable), old-stock costs (stimulating awareness of stock age management), and display costs (employees become meticulous). Disadvantages:
  • Requires high professional competence; employees need business thinking, and novices require significant training.
  • Many expense accounting items require reconciliation with customers, so basic reconciliation skills are needed.
  • Employees cannot directly access the factory price; information is relayed by the distributor, so it depends on whether the distributor is willing to disclose the base price. Hybrid Model: Sales Commission + Management Profit Share + KPI I learned about this model while visiting a distributor in Shijiazhuang. Mr. Zhang's annual business scale is around 20 million yuan, with 6 salespeople and 5 brands. Salespeople operate by region across all brands. Mr. Zhang said he is from the 70s generation, while his team is all post-95s, under 30. Managing the team directly has a generation gap, and hiring a professional manager isn't profitable enough to support. So he devised a clever salary model. For each of the 5 brands, he selected the salesperson with the highest sales for that brand as the brand manager. Thus, among the 6 salespeople, 5 are both brand managers for one brand and salespeople for other brands—both managers and executors (KPI will be discussed later). Salary model: Sales commission = sales achievement in one's own area * commission coefficient; Management profit share = profit achievement for one's brand * profit share coefficient. As a team member, to increase income, one must first do well in their own area, and also cooperate with other brand managers to complete brand-related targets (if you cooperate with others, they will cooperate with you). This solves management challenges, involves all employees in operations, enhances team stability, and helps complete brand tasks—a win-win-win-win! It's worth emphasizing: In the early stages, attention must be paid to each person's business and management capabilities, with continuous training and support until the team works harmoniously and efficiency reaches the intended track. KPI Assessment Considerations KPI should typically not exceed 30% of total income, and 2-3 assessment indicators are best. I usually suggest one primary and two secondary, i.e., one main assessment item and two auxiliary items, covering two aspects: Process performance: A management tool to encourage salespeople to perform prescribed actions, such as outlet plans, visit plans, display actions, etc. Result performance: To achieve or exceed expected performance, such as sales targets, profit targets, etc. Process performance assesses whether behaviors are done correctly; result performance assesses whether results meet goals. Therefore, when designing, key factors include whether data for each indicator is easy to extract and whether process-based assessments can be implemented. Secondly, KPI assessments should not be fixed; change and adjust monthly. Especially during peak and off-peak seasons: In peak season, it's time to focus on sales, so KPI can be appropriately reduced; in off-peak season, sales are limited, so increase process assessment items for market building, and offer slightly higher KPI rewards. Finally, KPI must be a unified baton for market direction. A distributor is an agent for a region, and subordinate salespeople are area managers. Only with synchronized frequency can regional influence be created. For example, when launching new products, all salespeople must have the same KPI indicators so the market can blossom in a short time, increasing the success rate. Otherwise, if everyone works independently, they are easily crushed by competitors, wasting all efforts. 🔺Scan code for ticket inquiries🔺