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A growing trend in the market is commission-based compensation for sales representatives based on sell-out, rather than sell-in. This is the most accurate and effective way to structure commissions. It is the sale to the end consumer that reliably reveals how well a product is moving with the target audience.
When commissions are based on sell-in, they only reflect the movement of the product from the manufacturer to the distributor or retailer, without considering the final consumer.
There is no real information on whether the product has reached its destination, which is the consumer. At this point in the supply chain, the product has left the factory but stopped in the distributor’s or point of sale’s stock, creating the “serrated edge” effect on the manufacturer's sales.
In this article, we will show you exactly how to use this important tool to motivate your sales team and ensure that the industry's sales continue to grow in a continuous flow.
To make this tool feasible, we will highlight the importance of having real-time, reliable sell-out data. This ensures that commission calculations are done accurately, with no room for error at the time of payment.
Continue reading to understand everything about sell-out-based commissions and how Implanta can help you!
Difference Between Sell-In and Sell-Out
To begin the explanation of this type of commission, we need to clearly define the difference between sell-in and sell-out. In short, sell-in is the sale from the manufacturer to the next agent in the supply chain (distributor or point of sale), while sell-out is the sale from that agent to the end consumer:
Sell in
Sell-in is the sale of products between the manufacturer (industry) and the retailer (or distributor). It is a B2B (Business to Business) transaction.
Sell out
Sell-out is the sale of a product to the end consumer, excluding the segment where the item passes through intermediaries. It is a B2C (Business to Consumer) transaction.
Sell-in and sell-out are both extremely important indicators for evaluating a product’s performance in the market and guiding sales and marketing strategies. For these strategies to be effective, it is crucial that both concepts are aligned.
For example, it is not enough for the manufacturer to focus solely on selling the product and filling the distributor/retailer's stock (sell-in) if that channel cannot sell to the end consumer (sell-out).
Having clarified this, let’s now focus on the importance of having reliable and accurate data, collected directly from the final sale, so that the industry and supplier companies have a true view of how each item is moving and can carry out accurate commissions for their representatives.
Commissioning Trend on the Rise, Here to Stay
Typically, commissions for sales representatives are based on the quantity of products and items sold to distributors and retailers. This is the most well-known and traditional method of commission payment.
When representatives make these sales, the products go directly from the manufacturer to the distributors' and retailers' inventories. In this model, representatives are not concerned with selling the goods to the end consumer. Instead, they focus on selling to the intermediary, as that is where their main income comes from, and where their commissions are calculated.
However, this does not reveal whether the product is actually being consumed by the end customer or if it is just sitting in stock, which can lead to inventory excess and obsolescence.
When commissions are based on sales to the end consumer, they are tied to the product's actual destination: the target audience for that item.
This approach creates a more realistic compensation for the representative and a fairer model for the payer, which is the manufacturer. In addition to avoiding stockpiling intermediaries with products that may not sell well, it helps keep the supply chain and market flow moving, preventing losses.
Advantages of Sell-Out Commissioning
Paying sales representatives commissions based on sell-out offers a range of benefits for the industry, both in the short and long term. Let's look at the main reasons to adopt the sell-out payment model:
Synchronization with the Real Interest of the Industry
Sell-out reflects the actual performance of a product in the market, showing the volume of purchases made by end consumers. By using this indicator for commission purposes, you ensure that representatives focus on concrete results, not just moving products through the distribution chain.
This prevents the market from being flooded with items that do not have genuine demand.
In contrast, sell-in can lead distributors or retailers to artificially increase their stock levels without ensuring that they will sell those products to consumers.
This can result in excess inventory and forced promotions to clear the goods, which undermines the brand image and the perception of prices.
Incentive for Stability in the Sales Chain
By paying commissions based on sell-out, you motivate the representative to ensure that the product is well-received and has good turnover at the point of sale. This results in greater focus on promoting products that truly attract consumers, creating a healthier and more sustainable sales cycle.
In the sell-in model, the representative may feel inclined to prioritize sales that are not necessarily the most profitable or have the highest market growth potential, but those that meet immediate sales volume targets.
Minimizing the Risk of Excess Inventory
By adopting the sell-out model for commission payments, the primary goal is to ensure that products reach the end consumer. This reduces the likelihood of distribution channels accumulating excess merchandise that won't be sold. It helps avoid the need for promotions or discounts to liquidate products that have lost their value.
On the other hand, the sell-in model may encourage representatives to pressure distributors or retailers into purchasing large quantities of products without considering these channels' ability to sell them. This can result in high inventory volumes and difficulties in making long-term sales.
After confirming the importance of compensating your sales representatives and sellers based on the performance of sales channels, the big question arises:
– How can you obtain reliable sales data from your channels to calculate commissions?
That's where Implanta comes in, as a partner for obtaining reliable and accessible sell-out data.
Implanta offers an efficient solution for collecting and analyzing data from integrated distributors and points of sale (POS), capturing all information from sales to the end consumer. By monitoring these transactions, it can accurately identify the performance of each product in the market.
In addition to collecting this data, it undergoes thorough processing, which is analyzed to provide valuable insights for the industry and manufacturers.
This collection and analysis process not only provides a clearer view of actual consumer demand but also facilitates strategic decision-making. This ensures more efficient stock and production management, aligned with the real market needs.
Improvement of Cash Flow
Sales driven by the sell-out model are directly linked to the actual sale of products in the market, which can lead to a more stable and controlled cash flow for both the industry and distributors and points of sale (POS).
In contrast, the sell-in model tends to create a more irregular cash flow, as both the industry and its sales channels may have more products in stock than necessary for the sales cycle, tying up working capital.
Greater Emphasis on Building Links with the End Customer
When commission is based on sell-out, the representative tends to establish a closer connection with sales channels and, often, directly with consumers.
This promotes a more strategic and personalized approach to driving sales, through actions such as targeted promotions, sales team training, or product portfolio adaptations, creating a stronger relationship and generating sustainable results over time.
In the sell-in model, attention is usually focused more on negotiations with intermediaries (distributors and retailers), thereby neglecting a deeper understanding of the end consumer's needs and preferences.
Encourages More Assertive Marketing Strategies
The sell-out model provides a significant incentive for representatives to collaborate on the development of more effective marketing campaigns and promotions, as their compensation is directly linked to the acceptance and demand of the end consumer.
This tends to generate more targeted marketing strategies that are aligned with the real needs of the market.
On the other hand, the sell-in model can result in a more operational-focused approach, where promotions and sales are carried out to stock the distribution channels without ensuring genuine demand from the end consumer.
Successful incentive campaigns depend on accurate and well-interpreted data. Therefore, it is essential to use software or platforms, like those developed by Implanta, which ensure the precise collection and processing of this information throughout all stages of the production cycle.
Data intelligence facilitates more informed decisions and increases the chances of success, especially in areas such as demand forecasting and distribution visibility.
To achieve effective results, it is crucial to update the data collection and interpretation methods in real time. With a solid information base that integrates all sectors, from industry to retail, this is where Implanta excels, offering data intelligence solutions for the industry.
Strengthening Competitiveness
The sell-out model, by requiring constant and sustainable sales, can stimulate more competitive behavior among representatives. They will seek ways to highlight their company's products and brands in relation to competitors, ensuring that consumers choose their products.
On the other hand, the sell-in model tends to encourage competition focused on sales volume, without the requirement of ensuring that these products are truly well-accepted in the market.
More Effective Monitoring of Market Performance
The sell-out model, by requiring constant and sustainable sales, can stimulate more competitive behavior among representatives. They will seek ways to highlight their company's products and brands in relation to competitors, ensuring that consumers choose their products.
In the sell-in model, the company faces more difficulty in assessing the real acceptance of products. This is because the focus is on the movement of goods to distribution channels, without directly considering the behavior of the end consumer.
Only with Reliable Data is it Possible to Commission Through Sell Out
As seen in all the advantages mentioned, to commission through sell out, one crucial factor is having reliable data that is collected quickly and analyzed accurately.
For this, you can rely on cutting-edge software that is constantly updated, collecting, interpreting, and providing precise data to ensure commissions are paid fairly and effectively.
Implanta directly addresses this point by focusing on data intelligence, collecting, analyzing, and providing reliable data efficiently, with real-time updates.
Implanta Has the Highest Data Accuracy in the Market
When commissions are paid based on inaccurate information, it leads to payment errors and poor commission distribution to representatives, causing headaches and dissatisfaction.
Having real-time control of sales to the end consumer is the foundation for accurate sell out-based commission payments.
This data also allows the industry to gain clearer insights into whether retailers are effectively promoting and selling their products.
To ensure the success of incentive campaigns, from planning to final rewards, it’s essential for the responsible parties to obtain correct, up-to-date, and precise data on sales.
Traditional industry systems are often insufficient. Products sent to distributors don’t always correspond to the volume of sales to the end customer, which can impact reward accuracy.
Some companies conduct raffles among top sellers to increase participation. However, it’s crucial to ensure the correct processing of data to make rewards fair and reduce costs. Technology, like that provided by Implanta, offers detailed and accurate sell out reports. This helps in evaluating and continuously improving business results.
The platform developed by Implanta enables your team to analyze and share data on the performance of different sales channels daily, with an accuracy of over 99.8%.
Is this what you were looking for? A reliable data intelligence software solution applied to the industry, including for sell out commission payments? Then you can count on Implanta’s help—contact one of our specialists now!
