We will continue to address some of the most pertinent questions that were asked during our latest home improvement webinar.
Q: What is the best compensation plan for salespeople?
A: Compensation is a key. So let’s start out with a couple of “do not’s”. Avoid paying salespeople on a profit sharing basis. The profitability of each contract should be measured against the allowable compensation built into your price. Incentive compensation where contracts are constantly sold within those parameters or what is considered above average profitability could be considered at the end of every quarter or at the end of each year. As an example, if your salespeople are selling a product where the cost of goods is 45% of the selling price, in cases where they exceed this number your profitability is diminished, whereas when their jobs come in “collectively” below 45%, your profit is increased and you could pay an adjustment bonus.
Q: Is there more to understand about sales compensation?
A: The answer is much more, but see if this helps. Salespeople work best when they understand their function is to present your company and your product in a highly enthusiastic matter which portrays your company and your product at a price level which is perceived as “your job is worth what you are asking for”. When the salesperson sells a job for the amount indicated in your price list they essentially earn a commission. In terms of specific percentages, commissions can vary from 7-10% on the average specialty product. For example, “quick turn” products such as siding, windows, bath refitting, where the average contract is from $6-15k, the commission will probably be in the 8-10% range. “Big ticket” items such as sunrooms and basement refinishing, where the average contract can often be $35-40k, the commission base is usually around 7%. Again, this takes into consideration the various “profitability adjustments” you can make at the end of a quarter or year. Also, once the job is sold and approved for installation and you have a deposit, most organizations advance the salespeople as much as 50% of the applicable commission with the balance being due once the job is completed.
Q: How do you keep salespeople motivated to insure consistent productivity/sales?
A: Selling directly to consumers has many “ups and downs”and ”emotional highs and lows”. As an example, the salesperson may miss a deal they thought they should of sold, or they’ve sold 1 or 2 deals that were turned down for credit or were cancelled. The latter usually creates an emotional “down”. Management’s role in all of this is to say and do things that keep the sales person inspired and upbeat. Salespeople have to be stimulated to constantly think positively. The later requires that they are using presentation methods which help them in this area. The daily papers and the news media are loaded with negativity which often infects the thinking/feeling of salespeople. In many cases they believe the prices are too high and the leads are not good enough. It is management’s responsibility to employ methods which constantly reinforce to the salespeople that they work for a good company and that they are being well trained. And if they continue to do what’s right within the framework of your training their outcomes will be positive. If you have access to video training or outstanding inspirational speakers on DVD, use them to get your salespeople feeling “up”.
Q: Are most companies these days offering a “draw” during a specific training period? If so, how much?
A: Whether it’s a draw or an advance, the answer is for the most part, yes. If you are treating your employees as independent contractors or as 3508 employees you need tax advice to be sure your protocols are correct. The purpose of a draw or advance is to help stimulate the salesperson to grow during the training stage, while making them feel part of “the team”. The “draw” should be clearly defined in a simple agreement acknowledging that it is an “advance” which is due to be repaid. Many companies hire salespeople with the understanding that the first and sometimes second week are for training purposes and thereafter the draw will be paid. In general, it’s a good idea but has to be carefully administered to meet the requirements of “law” which vary from state to state.
Q: I never was a salesperson, never had any sales training, and now I own a company and have four salespeople and in some ways I feel at a loss for not understanding what you mean by “sales structure”.
A: This is extremely normal. As quickly as possible, find a way to ride in the field with your salespeople, go on a call with them, do not get introduced as an owner, and just observe what they do. There are many myths regarding in-home selling that may surprise you. In addition to all else, do a behavioral profile to find out if you have certain aspects of your behavior which are adaptable to selling. This might surprise you. We have clients which are large corporations and the president or chief financial officer has little or no experience in selling. However, they do understand what salespeople go through because they follow the example I just cited regarding “going into the field” with their people. You can have the same experience and results.
Q: What do you do when you have a good salesperson who sells good business but abuses prescription medications?
A: If you are implying that you have someone who is even mildly addicted to prescription drugs this individual should not be entrusted with leads, access to your customer list, or even, be an employee of you company. In the event of some horrific accident you will be treated by the legal profession as a “deep pocket” whether you are or not. Those who misuse prescription medications on a regular basis are unfortunately addicts. We advise most of our clients to have a provision in their employment agreement that calls for immediate dismissal in the event of such behavior.