3rd Party Compensation Structures

Goals

Identify best practices or ideal structures for compensating 3rd party sellers and ensuring that they comply to the parent company's specifications for price, quantity, etc. This information should ideally come from expert articles or industry reports from management consulting firms, and will be used to help develop a sales incentive compensation program for a sales organization that sometimes makes sales using 3rd party sellers.

Early Findings

  • Lumen Learning lists in their book, Principles of Marketing, three best practices for managing and incentivizing third-party sales successfully:
    • Understand and align incentives - it is better to optimize an existing structure and understanding the roles each party plays and how they are compensated, rather than trying to create one from scratch.
    • Provide exceptional sales support - third party sellers should be able to easily become an expert in what they are selling, so that they can be informed about what they are selling and do so efficiently.
    • Create demand for your product - don't solely rely on the marketing channels to get products to customers; intead, make sure the product is something people want/need, and it will be easier to sell.
  • A risk management plan prior to working with third-party vendors can help to ensure that sellers are applying to the conditions set in place, while also providing a backup plan in case they don't later on.
  • To ensure that a product is being sold the way it was planned to sell from the start, experts recommend negotiating exclusive distribution agreements with suppliers in order to secure the supply chain. For some, this also includes making private label products.

Proposed next steps:

You need to be the project owner to select a next step.
Initial research to identify the best ways to compensate third-party vendors indicate that this data is very niche. In order to better locate this information, we suggest moving forward with research that will identify a specific industry for which a company such as yours is using third-party sellers to help bring in revenue. For this, we could really use some clarity on what industry/market your business is in. For the most part, information that focuses on specific businesses is related to the retail industry. If you do not let us know which industry you would like us to look into, we will look for data related to the retail industry. In this manner, we suggest moving forward with research that will identify 2-3 case studies of retail brands that utilize third-party vendors to help sell their products. For each case study, we will explain 1) what they are selling, 2) who they are using as third-party vendors to sell their products, 3) how the third-party vendors are selling products, and 4) how these third-parties are compensated by the retail brand they are helping to sell.
Alternatively, we can move forward with research that will identify the ideal sales structure for retail companies that are using a third-party vendor to help sell their products. This research option would include analyzing the ways in which some retail brands pay their third-party vendors in order to compile a structure that embodies these practices in an instructional manner.