---
title: "How to Design Distributor Compensation and Performance Systems That Fit the Business"
description: "The key to ultimately achieving profit growth lies in people; the core action for bosses is to activate personnel, and only by distributing money well can they use people well. Distribution is essentially a selling business, and the most important people in selling are sales representatives. Whether salespeople can create profits for distributors depends on whether the compensation system can motivate them. Traditional assessment methods influenced by conventional thinking not only fail to generate profits but also lead to a rapid decline in distributor profits, making it crucial to pursue new, effective, and efficient compensation systems."
author: "李锋"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-11-19"
language: "en"
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# How to Design Distributor Compensation and Performance Systems That Fit the Business

> The key to ultimately achieving profit growth lies in people; the core action for bosses is to activate personnel, and only by distributing money well can they use people well. Distribution is essentially a selling business, and the most important people in selling are sales representatives. Whether salespeople can create profits for distributors depends on whether the compensation system can motivate them. Traditional assessment methods influenced by conventional thinking not only fail to generate profits but also lead to a rapid decline in distributor profits, making it crucial to pursue new, effective, and efficient compensation systems.

"The key to ultimately achieving profit growth lies in people; the core action for bosses is to activate personnel, **only by distributing money well can they use people well.** "

Distribution is essentially a selling business, and the most important people in selling are sales representatives. Whether salespeople can create profits for distributors depends on whether the compensation system can motivate them to generate profits. Traditional assessment methods influenced by conventional thinking not only fail to generate profits for distributors but also lead to a rapid decline in distributor profits, making it crucial to pursue new, effective, and efficient compensation systems. In the past two years, New Distribution has interviewed dozens of distributors who have maintained rapid growth despite intense market competition. They all share a common characteristic: **extremely precise control over personnel and highly efficient motivation of personnel.** Due to space limitations, we have selected a few typical distributors to show how they distribute money well and use people effectively.

**Different Scales, Different Compensation Systems**

First, we introduce a distributor from Jiangxi. From zero to 100 million in just six years—how did they do it? **In the early stage of the company, they adopted a profit-sharing system. The compensation plan was: base salary (4,000) + profit sharing - business expenses.** The core part of the salesperson's income was profit sharing. The company set a base profit amount, which was determined based on the usual regional sales situation. For example, if the base profit for the region was 40,000, after the salesperson completed the 40,000 profit, the excess profit would be split equally between the salesperson and the company. Of course, this compensation method had obvious drawbacks. With a monthly sales volume of 5 million as the dividing line, below 5 million, the company and salespeople achieved a win-win situation, with business costs controlled at around 4 percentage points; once sales exceeded 5 million, business costs rose to 5-6 percentage points and continued to increase with sales, which was unreasonable. **Based on this background, the company adjusted its compensation plan: no base salary + 2.5% sales commission + gross profit difference bonus + additional rewards.** The most obvious change was that salespeople had no base salary; their main income came from sales commissions. **The gross profit difference bonus algorithm: (current gross profit margin - last year's gross profit margin) * sales * 20%.** Additional rewards were set by the company as task amounts; completing corresponding tasks earned corresponding rewards. For example, if the task was 300,000 in sales, achieving 300,000 earned a reward of 1,000; achieving 350,000 earned 2,000, and so on. Through this method, additional rewards were fixed, variable costs decreased, the company's business expenses became stable, and sales continued to rise steadily. After the compensation reform, the average monthly salary of salespeople reached over 12,000, still far higher than peers, and their initiative was greatly unleashed.

**Assess Sales in Peak Season, Assess Process in Off-Season**

The second is Mr. Fang from Guizhou. In his view, running a good company is not just about solving employees' "food and clothing" problems, but about improving their living standards. **Mr. Fang's compensation performance method: sales amount salary + profit salary + KPI assessment salary + 10% net profit dividend.** The 10% net profit dividend is given to the sales team, distributed based on multiple dimensions such as "sales contribution & profit contribution & return ratio & return loss." The core of KPI assessment is to assess sales in peak season and process in off-season, to balance salespeople's salaries. Most categories have peak and off seasons. Net profit dividends are considerable in peak seasons, but in off-seasons with no sales, corresponding KPI assessments are needed to boost salespeople's salaries. Another important point is that return ratio assessment should be a focus in both peak and off seasons. In the sales industry, after working for over a year, salespeople have certain customer relationships at terminals and have many techniques to get customers to accept stock pressure. For example, a store might originally sell 50 units, but the salesperson might pressure 100 units to get rewards. Stock pressure leads to slow-moving returns; if not handled, customers are lost; if handled, the company suffers losses. Mr. Fang's company has two methods for return/exchange assessment:

> **First, the return ratio must not exceed 5%.** If the return ratio exceeds 5%, a penalty of 1.5 times the KPI reward is imposed. For example, if the sales assessment reward is 500 yuan, but the return ratio exceeds 5%, the salesperson must refund 750 yuan. **Second, the return ratio of the first month determines the sales salary of the second month.** For example, if the sales collection commission rate last month was 1%, and the return ratio exceeds 5%, the next month's collection commission will be reduced to 0.8%.

In addition, to reduce the difficulty of salespeople's work, for brands with sales volume and potential, a dedicated brand operations manager position is added, responsible for the brand's operation. As brands and products increase, salespeople may be unclear about key tasks at each stage when doing distribution and promotion. The brand operations manager will develop work plans broken down to monthly and weekly levels. What to sell at each stage, how to do displays, and inspection standards are all the brand manager's responsibility; salespeople only need to handle specific implementation and execution, avoiding confusion about goals and direction. This compensation performance and management model is very advantageous for ambitious salespeople. Whether in off-season or peak season, salespeople can earn salaries far higher than local peers, and personnel stability has greatly improved.

**KSF Assessment Method**

The last is a distributor from Xuzhou, Jiangsu. In a county market with a population of only 700,000, they grew their business a hundredfold in just 6 years, with business volume exceeding 200 million. They adopted the KSF assessment method (Key Success Factors assessment), first determining company needs, then designing a unique compensation system that allows the company to grow rapidly while satisfying salespeople. **Their compensation design: 20% sales reward + 40% gross profit dividend + 20% item achievement + 10% sales forecast reward + 10% attendance.**

First, sales reward and gross profit dividend are actually tied together. Sales reward is different from sales commission; it sets a base sales task, and rewards are obtained after achievement. For example, if the sales target is 100,000, the sales achievement reward is 2,000. If not achieved, for every 100 yuan short of the target, the achievement reward is reduced by 10 yuan. If achieved, the salesperson not only gets the reward but also receives 30% of the gross profit on the portion exceeding the target. For example, if sales reach 150,000, the excess over the target is 50,000, and 30% of the gross profit on that 50,000 belongs to the salesperson. It should be emphasized that expenses incurred by the salesperson to achieve sales are deducted from gross profit, i.e., the gross profit formula is: **sales - purchase cost - policy expenses.**

As for item achievement reward, it assesses the salesperson's process indicators, mainly evaluating the promotion of high-profit products. For example, for new product distribution, completing the development of 100 store networks and meeting distribution requirements earns a high reward. The sales forecast reward is determined by the salesperson. Salespeople visit according to routes, each route must be visited 3 times a month. Based on sales targets, they estimate the tasks to complete for each visit; if they complete the forecast plan, they get the reward. Through sales forecasting, salespeople reasonably allocate tasks to each stage, effectively avoiding the situation where they pressure terminal stores at month-end to meet sales targets. Regarding the attendance system, a points-based management system is adopted. Internal staff manage points, with 1 point = 10 yuan, and each salesperson gets 1 point daily. The company has a points assessment table; if no company rules are violated that day, the salesperson gets 1 point; if rules are violated, points are deducted, with 1 point deducted per violation, and points can go negative. Additionally, they break down sales targets into four 25 plans. For example, if the monthly sales target is 400,000, each week assesses 25% of the target, 100,000, and achieving it earns 5 points. Through such a detailed compensation system, while the company achieves high annual sales growth, salespeople's salaries also steadily increase, with an average salary of 8,000 yuan, more than 30% higher than local peers.

**Final Thoughts**

Due to space limitations, we cannot list all distributor compensation design plans. From the compensation designs shared by the three top distributors above, it can be seen that compensation performance design is not singular but composite, cannot be static, nor can it change drastically at all times. It should be gradual, transforming management into motivation, using human nature stimulation as a means, and aiming for sales and profit growth. At the same time, profit sharing is a necessary path for distributor bosses. When wealth gathers, people disperse; when wealth disperses, people gather. A reasonable compensation system can unleash the wolf-like spirit of the distributor team, naturally greatly improving the business. So how to share profits? A simple example: **2,000 base salary + KPI assessment + dividend.** For example, an employee's monthly salary is 6,000, divided into 2,000 base salary, 1,000 KPI assessment, and 3,000 dividend (30,000 gross profit * 10% = 3,000 yuan). Of course, compensation performance should not be copied mechanically. From the plans shared by the three top distributors, it is clear that they all adopted profit-sharing strategies, but their plans are quite different. Excellent distributors understand that compensation design should be tailored to their own development based on market environment and development status, which is the so-called "tailoring to the business." Compensation performance is the key to profit growth. If you want to design a scientific and truly implementable compensation performance system, you need to master more details.

**On December 2-3, Mr. Li Feng, Dean of the Distributor Business School, will hold a major course on compensation performance implementation and growth in Nanchang, Jiangxi.** Main topics:
  1. **How to scientifically design compensation performance? (including salespeople, department managers, logistics drivers, and promoters)** Compensation performance is the key to profit growth. How to activate personnel and make employees work for themselves? How to distribute money well and use people well? How to align employees and bosses on the same side? How to solve the problem of logistics drivers not putting in effort?
  2. **How to conduct KPI assessments?** KPI assessment is a key part of compensation design; doing KPI assessment well before compensation design can achieve twice the results with half the effort. The course will share the ten core elements of KPI assessment, case analysis, and how to implement them.
  3. **How can distributors profit from data?** No data, no decisions! Through data, problems in people, finance, goods, and customers can be identified and operations optimized, helping distributors achieve compliant operations and improved management efficiency.
  4. **How can distributors manage financial and tax risks?** Financial and tax risks are like a fire in the backyard; finance and tax are crucial for distributors. The course will share the key points of the Golden Tax Phase IV inspection and compliance, and the financial and tax risks of "uninvoiced income" and how to respond.

As a distributor operator with 28 years of experience, Mr. Li Feng has been deeply involved in frontline markets across the country, possessing rich, solid, and practical distributor experience, with keen market insight and effective and efficient methods for personnel activation. Over the years, Mr. Li Feng has been committed to providing one-on-one coaching services to FMCG distributors. To date, more than 200 distributors have benefited from Mr. Li Feng's coaching, and 90% of them have achieved significant sales and profit growth after compensation performance reform, with growth rates exceeding 30%. These distributors have consistently reported that Mr. Li Feng's guidance is very practical and can be quickly implemented in practice. To better serve distributors, Mr. Li Feng will hold a major course on compensation performance implementation in Nanchang on December 2, with hands-on teaching, focusing on specific implementation methods of compensation performance plans. Come with questions, leave with solutions, and use them immediately upon return.


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