How Should I Pay My Sales People
I wish I had a dollar for every time a BSC has asked me that question. This area is one of the most discussed areas in all of cleaningdom. Do I pay salary only? Salary plus commission? Commission only? If commission, how much? So let's review a few compensation plans and give you my personal favorites and why.
SALARY ONLY
My opinion of this method is that if a sales representative wants a "salary only" position they are not confident of their ability to bring business in the door. If you agree to pay them in this manner you will almost always end up making them a "former" sales person and the only one who made any money was them. I strongly recommend this method not be used.
SALARY PLUS COMMISSION
Nearly all of the companies I have familiarity with use some variation of this method. It usually consists of a negotiated "livable" base salary plus a car allowance.
Determining the commission structure is usually the tricky part. There are probably about as many types of commission plans being used as there are sales people. Here are a few plans that I am aware of:
Determining the commission structure is usually the tricky part. There are probably about as many types of commission plans being used as there are sales people. Here are a few plans that I am aware of:
- The sales representative receives a percentage of the first months billing payable 30 to 45 days after the contract is started. The percentage can be anywhere from 15% to 40%. The important issue here is there needs to be a check and balance as to pricing of the contract. Many organizations require that before a proposal can be presented, the ownership, operations, and sales departments have to "officially" initial that they have reviewed and approved the pricing. If disagreements occur, they are discussed and then agreed upon BEFORE the presentation is made to the prospect.
- Here the commission paid is a percentage of gross profit that has been agreed upon, again by all departments prior to the sales presentation to the prospect. The amount of commission can be 1, 2, or 3 months gross profit or a percentage of 1,2, or 3 months gross profit.
This method has to have certain guidelines as to "is the gross profit amount agreed to before the sale or is it paid on the actual gross profit generated"?. The first method requires the Operations department to deliver what everyone agreed to whereas the second method pays the sales person on what the Operations department actually delivered. You can imagine the disagreements that can occur if the Operations department doesn't deliver what they agreed to deliver.
- This method pays a percentage of one months contract billing based on the actual labor performed in the second month of the contract AND the percentage will be different dependent on types of accounts sold. Here again, a requirement is that ownership, operations, and sales agree on the projected labor and selling price prior to the presentation being made.
The reason for the different percentages allows for the company to direct the sales department toward the types of accounts it wants in its portfolio. For example, if you are wanting to expand your industrial or medical account base you would increase the percentage of commission paid as well as increasing it on higher volume at acceptable lower labor costs.
I used this method for several years very effectively and it allowed us to increase our customer base AND DO IT PROFITABLY in the areas we wanted to grow. We paid handsome commissions but we also accomplished what we wanted. Our sales people liked it as well because it really focused them on the types of accounts to spend their time on. We paid almost nothing for retail and tenant occupied buildings because that was not our focus. We concentrated on owner occupied, industrial and medical facilities and the system work very well.
Because our company relied very heavily on selling consumables to our customers we also paid the sales person commission on those type of sales made to the customer for a certain period of time--usually 1 year. We did not ask the sales person to make calls to obtain the consumable sales. They were to negotiate that with the contract sale and then our operations department took it from there. This was a very nice add on, profitable business for us.
- This method pays an ongoing monthly commission for as long as the company has the account. This provides for the sales representative to receive 1,2, or 3 percent of the monthly billing with no more selling needed to that account. Some companies will ask the sales representative to make customer relations calls to justify the monthly commission. Want to start a real fight in your organization? Have the sales person make those calls. It creates havoc in the organization AND it keeps the sales person from doing what you are paying them to do---SELL.
Some companies use a variation of this system by paying a higher amount the first year, a lesser amount the second year, and then eventually phasing out the commission completely.
I personally am not a fan of the ongoing commission structure as I believe sales people can become complacent and "get comfortable" with their salary and ongoing commission. I firmly believe you pay an attractive commission one time and provide the appropriate support of the sales people and then expect them to succeed.
COMMISSION ONLY
I personally never used a straight commission structure or had anyone apply that knew anything about this industry that wanted a straight commission career with me. With a 90-120 day lead time usually needed to make the call, do the walk through, present the proposal and secure the signed agreement, the sales representative needs quite a cash reserve until worthwhile sales begin to be made. In addition, in the early months, if the representative comes from outside the industry, it may be difficult to get the sales at a consistently high level to provide any sort of straight commission income.
An exception, of course, might be that successful sales person you secure from a competitor that already has contacts. But then there is usually the issue of a non-compete contract that they have signed with their previous employer so you are unable to take advantage of the contacts they may have. By the way, I have been on both sides of non-compete employment contracts and am a firm believer in them if they are properly constructed. I offer absolutely no legal advice on them but am a believer in them.
A discussion on sales people would not be complete without a brief dissertation on vehicle allowance payments. I have used methods where I provided a car and also where the sales person provided their own vehicle and received a monthly allowance. In the words of the late New York Yankee manager Billy Martin when he appeared in the old Miller Lite beer commercials, "I feel very strongly both ways".
A discussion on sales people would not be complete without a brief dissertation on vehicle allowance payments. I have used methods where I provided a car and also where the sales person provided their own vehicle and received a monthly allowance. In the words of the late New York Yankee manager Billy Martin when he appeared in the old Miller Lite beer commercials, "I feel very strongly both ways".
When you provide the car you are in control of the appearance your company makes and you can also be comfortable knowing the vehicle is properly insured as well as maintained if you are paying all expenses.
If the sales person provides their own vehicle, that assurance is not always there. You have to make sure they carry the proper limits on insurance and you need to keep an insurance certificate on file which sometimes slips the minds of even the best managers.
Gas prices are one of the most volatile parts of our economy so the entire discussion of whether the company provides the vehicle or the sales person provides their own is one that requires very careful research as it is a MAJOR investment.
As far as which pay structure to use, that is up to the individual company but I used successfully a salary plus commission program in harmony with one or more methods of executive brief and hit list mailings on a regular basis for support of the sales effort as well as periodic customer/prospect industry update luncheons.
I have on previous occasions discussed providing appropriate support to the sales people and then expecting them to produce. I think it is critical that you develop, with their input, weekly, monthly, and yearly expectations of the business you expect them to produce. I recommend an every Monday morning or Friday morning "sales meeting" to review where you are and the plans of where you are going. Good sales people hate meetings unless they are meeting a prospect, but keep in mind, your Operations and Human Resource departments need to know at all times what sales proposals are being delivered, the status of existing proposals, and which ones are a "definite maybe" to close soon. I personally had every Monday morning conference calls with each sales person in each city in which we operated. We limited them to 30 minutes each and found them to be very productive. We stayed on the subject of sales only. You see, they couldn't sell me anything and I wanted them in front of suspects and prospects as much as possible. Most professional, effective sales people will keep the Operations and Human Resource departments very busy.
As I close this discussion on compensating sales people, I want to emphasize the importance of a coordinated effort of the selling process. I know that I have mentioned it before but if you want to be really successful in your efforts you need to produce support in targeted mailings to specific markets you want to penetrate. You also need to target specific accounts within those markets with specialized mailings and meetings.
And don't forget, sales people are employed to SELL, not to send out mailings, do telemarketing, put together sales proposals etc. If they are not in front of prospects they cannot close a sale. Good sales people won't stay with you if they are asked to do all this support work. Bad sales people will love it because they then have an excuse for not making their sales quota. Which sales person would you rather have?
