Salesman Compensation Structures & Incentives. Ronald Reagan once commented about welfare saying,

Transcription

1 Salesman Cmpensatin Structures & Incentives One f the mst imprtant cmpnents f driving business is by putting a functinal pay structure in place that serves the end gal, rewards tp perfrmers, and cntinually dangles the carrt. Cmpensatin is an incredibly pwerful tl, and is the driving frce behind yur salesmen s perfrmance in mst cases. That being said, the key is t USE the mtivatin f a virtually limitless incme t yur advantage and keep yur salesmen cnstantly pursuing mre sales. The Tpic f Salary/Guaranteed Pay Many business wners struggle with the ntin that withut sme srt f secure r guaranteed pay, they wn t be able t retain salespeple. They need sme srt f cushin! they claim. The fact f the matter is that salespeple have abslutely zer respnsibility within yur rganizatin ther than t create sales. That s it. If they are ding their jb, they will earn cmmissins. S why wuld they ever need any srt f guaranteed pay? The answer is simple: they wuld nly demand r require a guaranteed pay if they were nt intending t sell anything. If that s the case, yu dn t want these peple in yur rganizatin in the first place because they aren t ging t bring yu jbs. Rnald Reagan nce cmmented abut welfare saying, Welfare s purpse shuld be t eliminate, as far as pssible, the need fr its wn existence. Replace the idea f welfare with guaranteed base/salary pay and the same ntin applies. The purpse f having any srt f guaranteed pay shuld be t accelerate the individual wh is receiving it t the pint at which it is n lnger necessary because they are prviding fr themselves thrugh their sales. Likewise, replace the term pr with salesmen when Benjamin Franklin said, I am fr ding gd t the pr, but I think the best way f ding gd t the pr, is nt making them easy in pverty, but leading r driving them ut f it. I bserved that the mre public prvisins were made fr the pr, the less they prvided fr themselves, and f curse became prer. And, n the cntrary, the less was dne fr them, the mre they did fr themselves, and became richer. In ther wrds, the less that is prvided freely t yur salesmen, the mre likely they are t act and succeed n their wn accrd by prviding fr themselves. D nt hemrrhage mney in the name f salary if yu aren t getting the sales t supprt that salary. The prblem with salary pay fr salesmen is that it des nt

2 drive business; pay is nt in direct crrelatin with perfrmance. In ther wrds, a salesman wh gets paid a salary f $2500 a mnth regardless f what they prduce is nly a fair bargain if that salesman s persnal sales meets r exceeds $25,000 at a bare minimum. Yu re nt running a charity. Yu re running a business. Sales is a perfrmance- based psitin. Salesmen wh perfrm get rewarded via cmmissins based upn the sales they create. N sales, n incme. High sales, high incme. It s simple. Individuals wh knw this are nt ging t give tw hts abut salary r guaranteed pay, because they knw that if they sell, they will make far mre than whatever measly guaranteed pay is in place. Beware f bttm feeders wh make it their jb t hp frm cmpany t cmpany squeezing the business wner fr base pay with the guise f prmised cming sales fr several mnths until they finally get the bt and mve n t the next sucker. That being said, there are ways t put a type f guaranteed base pay in place that achieves bth the initial security new salesmen may feel that they need as well as drive activity t ensure yu re nt writing checks based n hpe instead f results. Here are sme great suggestins: 1. Base Pay per Appintment One f my favrite base pay structures that guarantees cmpensatin in exchange fr activity is the base pay per appintment methd. This structure pays a salesman $50 (give r take yu can decide) per qualified inspectin cmpleted, regardless f whether there was damage r nt r whether it gt signed r nt, OR cmmissin frm the sales, whichever is higher. The fact f the matter is that even the weakest salespersn WILL get deals signed if they are simply ding enugh inspectins. Cmpensating salesmen $50 per inspectin is a great way t drive activity, because in their eyes, the mre inspectins they d, the mre base pay they ll get paid. In ur eyes, the mre inspectins they d, the mre deals they are likely t sign, even when they re brand new. Cnsider a salesman wh des 10 inspectins a week, which breaks dwn t just 2 inspectins per day Mnday thrugh Friday. That s $500 in base pay. Even if the salespersn signs just 1 ut f thse 10 inspectins, he is guaranteed t earn mre in cmmissins (likely anywhere frm $750-1,500) and yu ve already made yur mney back n the base pay. The base pay per appintment can be paid like a draw, where yu deduct the amunt paid ut in base pay frm the cmmissins due at the end f the week r mnth. Yu can als set it up t where the salesman simply gets the base pay r the cmmissins fr the week, whichever is higher. This structure f base pay guarantees that as lng as the salesman simply puts in

3 effrt, they will get rewarded fr that effrt regardless f their results, taking the pressure ff f them initially until they becme slid clsers. S, in the event that the salesman is nly clsing at 10 r 20% in the beginning until he sharpens his skills, r in the event that they have an ff week where they did several inspectins but had sme bad luck, they are still getting cmpensatin. Fr example, if the salespersn abve cmpleted his 10 inspectins ($500 in base pay) and signed 2 deals that generated $20,000 in sales, and he was starting ut at 7% cmmissin ff the grss, he wuld be earning $1,400 in cmmissins. If yu have already paid the $500 in base pay, yu wuld we the salesman $900 in cmmissins ($500 + $900 = $1,400). Initially, salespeple will begin wrking because f the guaranteed base pay, but nce they get a taste f cmmissins, they n lnger care abut base pay and are wrking fr cmmissins. This structure is designed t prvide that cushin that cvers basic expenses such as gas and fd fr the first few weeks until yur salesman turns ver his first cuple f jbs and starts making real mney, effectively giving them a chance t see the real pprtunity with cmmissins and allwing yu t retain them during the first several weeks where they aren t seeing jbs cap ut quite yet. Ultimately, yu will likely nly have t pay base pay fr up t the first 8 weeks fr new salesmen. After that, their cmmissins will far surpass the base pay they wuld be earning. Qualified inspectins mean inspectins with AHA custmers (in the apprpriate Areas determined by hail swath/areas yu have recmmended, with Hmewners, Age 28+), when the hmewners are present, and have signed ff n the inspectin slip t cnfirm that the inspectin tk place. The cnfirmatin slip allws yu t ensure that real inspectins are being cmpleted and yur sales persn is nt claiming t be ding a tn f inspectins that he isn t. Yu can easily crss- reference and make a quick phne call t verify that inspectins were in fact cmpleted in the event that yu are suspicius. 2. Guaranteed Mnthly Pay +/- Cmmissins Earned Anther way yu can frame r psitin a guaranteed pay is t have a mnthly guarantee with stipulatins based n perfrmance. Again, the number yu chse must meet r exceed the sales figure that needs t be reached in rder t supprt that base pay. (Fr example, it wuldn t make sense t cmpensate a salespersn $350/week r $1,400 a mnth if they are nly turning in ne $10,000 jb per mnth that wuld nly earn arund $1,000 in cmmissins, because yu d be verpaying them by 40%). Yu culd have sme srt f minimum wage type salary +/- cmmissins

4 which is really still cmmissin- based, but the way it is presented t salesmen psychlgically makes them feel like it is mre secure, but as the business wner, yu are still prtecting yurself frm cmpensating salesmen wh are nt prducing. It might lk smething like this: $350/week r $1,400/mnth guaranteed salary, based n a minimum sales ttal f at least $20,000 per mnth. If we assume a minimum prfit margin f 30% n that $20,000, then we re lking at $6,000 in prfit. If we cmpare this t a 7% f the grss cmmissin structure, the salesman wuld have earned abut $1,400 ff that $20,000 s we re still right in line with what they shuld be paid based n their perfrmance. S we pay the salesman $1,400, ur numbers are wrking ut. On the flip side, if we were paying this salesman that guaranteed mnthly salary f $1,400 and they re nly turning in 1 jb each mnth fr a ttal f $10,000 in mnthly sales, if we cmpare that t a 7% cmmissin, they wuld nly be wed $700 ff the sales they ve created, meaning we wuld be paying them DOUBLE what they are actually wed nt gd. This is why it is s imprtant t have standards and expectatins in place t make sure what yu are paying yur salesmen is in line with what they deserve based n perfrmance. The key here is presenting hw simple it really is t hit the required minimum. The reality is that a $20,000 minimum (r whatever minimum yu chse) is equivalent f turning in 2 jbs per MONTH. That wuld be like wrking 4 r 5 hurs ttal. If they can t hit that minimum they shuld g wrk at a supermarket. With the guaranteed weekly/mnthly security blanket, cmmissins cme int play when sales exceed the minimum requirement. Let s say yur salesman is turning in $50,000 in sales per mnth. At a 7% cmmissin, they wuld earn a ttal f $3,500 fr the mnth. Take int accunt the guaranteed pay f $1,400 they have already been issued, s the cmmissins wed are $3,500 1,400 = $2,100. Yur salesman is still earning the apprpriate amunt f salary $1,400 + cmmissins $2,100 t ttal $3,500 which is still in line with perfrmance. Yu re nt dishing ut undeserved r excess salary pay, and yur salesman is getting paid fr the jbs they are selling. Everybdy is happy. If a salespersn falls shrt f the required minimum t qualify them fr salary, they are put n a mnth f prbatin in which if the required minimum plus the amunt f sales needed t balance the salary paid is nt met, they are bumped dwn t straight cmmissin. Fr example, let s say fr the mnth f June, Chris nly sells $14,000 (which wuld ttal $980 in cmmissins at 7% grss) meaning his $1,400 guaranteed pay ver- cmpensated him by $420. Chris is put n prbatin and must hit a minimum

5 f $26,000 in sales fr the mnth f July t balance ut his cmpensatin and remain n guaranteed mnthly pay. If that minimum is nt met fr the mnth f July (which wuld be abslutely abysmal anyne wh is barely shwing up shuld be hitting that mnthly required minimum!) he is n straight cmmissin frm that pint frward. This is great, because if this individual was smene wh was casting simply t d the bare minimum and cllect salary pay, they ll weed themselves ut. On the ther hand, if they are cmmitted t selling and making things happen, they shuldn t have any prblem being n straight cmmissin; a win- win fr yu as the manager r business wner. Hw much? Cmmissin Structures That Incentivize Generally speaking, salesmen earn either a percentage f the grss revenue per jb, OR a percentage f the prfit n a jb. This usually translates int smewhere between 10-15% ff the grss revenue r 25-50% ff the grss prfit. Hw much a salespersn makes n that scale (lwer r higher) shuld depend n what their respnsibilities are. Fr example, a salesman wh is expected and required t handle their jbs frm cradle t grave (ding everything frm kncking the dr, cmpleting the inspectin, signing the deal, and writing the estimate t meeting with the adjuster, ding the supplements, sending the invices, ding cllectins, etc.) shuld be earning n the higher end f the cmmissins spectrum (the 15% ff the grss revenue r 50% ff the grss prfit), while a salespersn wh strictly generates the lead, signs the deal, and meets the adjuster nly might earn tward the lwer end f the spectrum (the 10% ff the grss revenue r 25-30% ff the grss prfit range). True hustlers, hard wrkers, and g- getters lve the challenge and incentive f a grwing incme pprtunity, and ne f the mst pwerful tls yu can use t drive these individuals is the cmmissin ladder. Sme cmpanies like t refer t cmmissin based upn the grss revenue, and thers like t refer t cmmissins based upn the grss prfit. They re tw sides f the same cin, but we will use the grss revenue percentage in this example. 1. Cmmissin Ladder + Bnus based n career milestnes & mnthly sales: 0 - $250K: 9% grss $250K - $500K: 10% grss $500K - $750K: 11% grss $750K - $1M: 12% grss $1M+ : 12% grss + qualify fr Bnus 2% Bnus (14% grss) if sales hit r exceed $60K fr the mnth

6 Example: $45,000 mnthly sales = 12% grss r $5400 in cmmissin / $65,000 mnthly sales = 14% grss r $9100 in cmmissin) 2.5% Bnus (14.5% grss) if sales hit r exceed $80K fr the mnth 3% Bnus (15% grss) if sales hit r exceed $100K fr the mnth OR, yu culd prvide bnuses at every level. Fr example, based n the fllwing career milestnes: 0 - $250K: 9% grss $60K+ sales fr the mnth qualifies fr 2% bnus $250K - $500K: 10% grss $60K+ sales fr the mnth qualifies fr 2% bnus $500K - $750K: 11% grss $60K+ sales fr the mnth qualifies fr 2% bnus $750K - $1M: 12% grss $60K+ sales fr the mnth qualifies fr 2% bnus $1M+ : 12% grss $60K+ sales fr the mnth qualifies fr 2% bnus $100K+ sales fr the mnth qualifies fr 2.5% bnus $125K+ sales fr the mnth qualifies fr 3% bnus Ultimately hw this structure wrks is that salesmen can qualify fr bnus pay, but nly if their perfrmance cntinues t earn it. In ther wrds, if a salesman wh finally exceeds $1,000,000 in career sales slws way dwn and nly starts turning in 2 r 3 jbs a mnth, he wn t be paid like he is still a tp- perfrming salesman. He will still be earning mre than he wuld have if he were brand new, but he wn t be qualifying fr the bnus cmmissins because his mnthly perfrmance is lacking. This structure cnstantly prvides driving incentive fr high perfrmance regardless f what level a salesman is currently at. Even when a salesman has reached the tp f the incentive ladder, having the mnthly qualificatin fr bnus each and every mnth gives yur tp perfrmers that extra push t put up big numbers cnsistently. Having an incentive mnthly cnstantly puts shrt- term, within- arms- reach carrts in frnt f yur salesmen, as ppsed t ne big bnus prmised 12 mnths dwn the rad if perfrmance adds up. Fr many individuals, that is t lng term t drive sales cnsistently, s having that mnthly incentive helps keep sales up cnsistently. In terms f cmmissins paid n grss prfit, a similar structure might lk like this: 0 - $250K: 25% $250K - $500K: 30% $500K - $750K: 35%

7 $750K - $1M: 40% + 5% bnus (ttal 45%) $1M+: 40% + 10% bnus (ttal 50%) Example: a salesman wh has reached $1M in career sales turns in $50K fr the mnth. He did nt qualify fr bnus, s he earns 40% ff the grss prfit. If grss prfit generated by his $50k in sales is 30% ($15K), he wuld earn 40% f that fr a cmmissin f $6,000. Hwever, if he sld $60K, he wuld earn 50% f that 30% grss prfit fr a ttal cmmissin f $9,000. Yu culd furthermre put an annual sales ttal incentive in place as well. Fr example, yu culd have a 1% bnus: $500K annual ttal: $5,000 bnus $750K annual ttal: $7,500 bnus $1,000,000+ annual ttal: $10,000 bnus Even if a millin dllar prducer qualified fr 15% cmmissin every mnth and gt paid $150,000 in cmmissins, that $1M shuld have generated at least $300,000 in prfits. Subtract the $150K in cmmissins, and yu re left with $150K t the cmpany. Paying a $10,000 bnus n that ttal is mre than fair, a great incentive, and if it pushes 1 r 2 members f yur sales frce t exceed what they wuld have nrmally sld withut that incentive, everybdy wins. Bttm Line (literally and figuratively) The mst imprtant variable in these cmpensatin structure templates are YOUR bttm line(s). Manipulate the suggestins abve t fit yur business. Each cmpany has its wn varying degree f verhead, and there is simply n way t prvide a ne- size- fits- all cmpensatin structure that will wrk fr everyne, s PLEASE take int cnsideratin yur wn gals, verhead, and bttm line befre putting in place a final pay structure. The structures and suggestins assembled here are a guide t give yu ideas, templates, and suggestins t wrk frm. Yu may need t tweak numbers r percentages here r there t suit the specific needs r bttm lines f yur cmpany. Befre mving ahead with any cmpensatin structure, first run the numbers t make sure it will fit yur mdel.