How Do I Manage Salesmen And Commissions?

Ed the Roofer

(New thread so I don't hijack the other salesman topic.) Ed

I wasn't real good at managing the salesmen I had in the past. I did make sure that what ever we agreed on was paid when it was promised to be paid, even if I had to borrow from my line of credit to do so.

I do not believe in screwing with another mans pay, no matter what. I have learned from retribution, that even if I had justifiable cause to do so, it costs more for me in the end.

I do not have a good working agreement regarding paying other salesmen. I have many perplexing questions which need legitimate answers.

1) For instance; The guy sells a $ 9,000.00 job and collects the 33 % down payment and his commission rate is 10 %.

2) Has he earned 1/3rd of his 10 % at the time of collecting the deposit immediately?

3) Do you wait until after the 3 day right of recission to pay that amount?

4) Do you do the same as with the regular workers and pay the following Friday?

5) Do you owe the entire 10 % commission immediately or is it only based on per centage of the job that has been paid.

6) Do they receive the same 10 % commission on any extra work required on the job?

7) If they do, would they have to be responsible for getting th extra work orders signed?

8) What if the foreman of the job gets the extra work orders signed, does he get the 10 % commission or is there a 50/50 split between him and the original salesman.

9) How long after a salesman departs are they entitled to receiving any commissions from jobs that were estimated and presented, but not signed until after his departure?

10) If the job goes into the dumper and the full payment is not made by the HO, does the salesman still receive the full 10 % commission?
11) EXAMPLE; 66.67 % paid out of $ 9.000.00. Can't collect the final $ 3,000.00 without liens and legal expenses. Full 10 % or since their is 33 % outstanding and the presumption of Zero % profit until and if the HO pays, is a commission amount earned on an unprofitable job.

12) That last example actually asks 2 questions. What if the job was under bid and came in unprofitable also?

13) I would like the assurance that the agreement covers all of the what if bases, so there would be no mis-understandings.

14) Does anyone have an agreement somewhat along the lines I am seeking or additional advice?

Ed

dougchips

Ed, we pay for sales after the job is completed and we have final payment. This is nice for the company but not the best for the salesperson. I am in the process of using some outside assistance in revamping my sales policies & procedures.

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Tscarborough

Here is the argument about paying a salesman based on final payment from the client.

Unless the salesman is responsible for the job as a project manager, he has no stake in how the job is performed.

Unless the salesman is responsible for collection, he has no impact on final payment.

For those reasons alone, if you pay your salesmen on gross sales, then they are due their money at sales contract signing. If they are responsible for either of those functions, then they should also receive a base salary for duties performed. The percentage commission will, of course, be lower.

If, on the other hand, you pay your salesmen on GPM of the job, then it becomes part of their job to do collections, and it behooves them to not underbid projects, and maintain an interest in their progression. The percentage commission will, of course, be higher.

Any real salesman will prefer to be paid based upon GPM, as they will make more money, and they will perform a more valuable service to the company.

So, for the former system, the boilerplate reads:

At contract signing, the salesman will be due his commission.

For the latter, it reads:

After final payment, the salesman will be due his commission.

Ed the Roofer

Thanks to you both, DougChips and Tscarborough,

Dougchips,

I couldn't personally perceive of having to wait until job completion and final payment for my earned commission if I were in the SM's shoes.

I like to keep a backlog of at least 3-6 weeks on the schedule board and that would penalize the SM unjustifiably. No subcontracting done to pick up the pace of the schedule, just long term trained employees minus the ever replacing laborers for clean up work and grunt work.

TS,

Do you have a more definitive version of the SM procedures, duties and
commission structure policy, if you don't mind sharing individually or in open format?

Ed

vinylguy

i pay my salesmen 1/2 his comission up front after the 3 days ression period. also that he has brought in a downpayment. if the job is to be financed he gets paid at the end of the job once funded. i also do a end of job audit this helps keep the salesmen in check like if he sold 100 feet of facia and there was 125 ft total he must not get pd for those extra 25 ft. i also with new salespeople do a before job audit to give them the chance to make right something they may have screwed up! with that being said knock on wood never had to go back yet on the pre job audit. and salespeople usally figure high on footage as to cover thier own butts! hopes this helps

Floorwizard

I am responsible from cradle to grave. So I do not get commish until the job is completed and monies are collected.
But then again, I also get a draw every 2 weeks, and I can take that into consideration.

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Stone Mountain

Ed, you make some VERY valid points. I am currently arguing with Stonemountain2 about this.

I was paying commission based on 10% of the sale price, assuming the job was properly sold, with correct amrgins.
Unfortunately, last year, a number of jobs were sold with things thrwon in, or with blatent mistakes, or big discounts, or the salesman promising things that I couldn't (or wouldn't) do.

For example, our first guy, Stan, sold a $25,000 job with "lighting". The penciled in figure on the extimate was $500.00
When we were doing the job, the homeowner identified 50 (FIFTY) spots where he wanted the deck lighting to be, as well as a ceiling fan and light inside the Gazebo.
I talked him down to 25 lights and no fan, as I explained that we weren't electricians and that I was not going to put in the ceiling light without hiring a licenced electrician and getting a permit for it.

Another time, the salesperson agreed to paint a deck white. We don't do that. I made him go and do it.

Anyway, Although I could go on, I think this year I want to do it as a percentage of gross. Since I mark my work up 50-60 %, if I pay 30% of the gross profit, it works out the same as 10% of the sale price.
If the gross is significantly two low, then the percentage drops to 20-25% of gross. That way they share the pain.

Alternately, if they get MORE than my margin, they split the excess 50/50.
I also pay $125/wk base expenses, and after 3 months they can opt into my medical plan.

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Grumpy

Hey Ed. I got a lead in Bartlett, and my sales rep that services that area is on vacation right now. Any interest? I'd rather give it to you than let it go cold for a week until my sales rep returns.

vinylguy

i would hope that anyone paying a salesman would have breakdown sheets of how many sqaure how many feet how many pieces ect.... if you do not than how can you perform a pre job audit? for example we measure twice on all jobs the salesman takes his measurements than the production manager takes his. usally within 48 hours of sold contract. the salesperson has multiple sheets to fill out such as how many sqaure the roof is how many feet gutter soffit facia what color what style all paper work is broken down into separate sheets one for siding listing all kinds we use so he can just check it off such as quad 41/2 dutchlap in clay 20 sqaure 200 feet white gutter seamless with downspout. ect.... then when pro. manager goes out to measure he does the same this lets you do pre job audits. compare and have any material issues or price issues come up in the front end of the sales audit also give you great control on ordering material. then i pay 1/2 comission after this preaudit unless financed then he waits till job funds. but they usally bring in some kind of downpay even on finance jobs to cover thier 1st 1/2 comish. then crews go out to instal they to fill out paper work to hand in again how many ft sqaure ect... this is then compared to previous measurements helps me keep crews salepeople and pro man all honest and on same page. then if crews installed 220 ft gutter and downs i can subtract 20 ft from sales man or they figure it out together keep everyone on the same team and working together on the end result. if it was only 180 ft of gutter i do not pay the savings to sales we've found that this process actually makes sales figure on the round up side instead of on the down side you knoe 1648 sq ft goes to 17 sq instaed of 16 sq. this has been working for me the last three years with no problems so far. as for draws noway if a saleman is good at what they do they would rather live on comission alone. if i am doing my job and keeping solid lead flows coming in and keeping them in the homes than they should have constant revenue coming in. those that asked for a draw are not worth it for me they can make a couple good sales in a week and then slack off knowing they will get a draw if needed. also when they have front end and back end coming in at same time they are making very good living. very important to have everyone on your team buying in to the end results . thanks for listening and i hopes this helps ya figure out your game plan and also as with this system it works for me may not for you but i suggest trying new things until you find something that fits your style!

Grumpy

I have an upfront break down of what I will pay and when I will pay it. It sets my expectations upfront and shows who's responsibility is what.

I currently pay based on net sale, however I am probably going to be shifting that over to gross profit. It will lift some burden from my back and give the estimators more chance to more money.

Here is my current payment structure...(copied from my employee manual)

marc

Customers pay the commisions. We just handle the money.
If a salesman picks up 10% deposit he gets 10% of that amount. If he picked up 40% he would get 10% of that amount.

If he sells a job that's 100% financed with a lump sum due at the end of the job, that's when he would get his 10%

If he sold a job and the customer paid us in full upon signing. (it happens more than you may think) after the 3 day recission period is up the salesman would get 80% of his commision. We would hold 20% in case the job wasn't sold correctly.

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Mike Finley

Yowza! That's like the pay plan from grammer school. Just kidding but it is very rudimentary and certainly can't be helping you much creating any stars on your payroll. However reading you last post about how you just want average anyways I can see why you have the pay plan you have.

If that was my organization I would definitly switch to a sliding scale % and not be using a flat 11% no matter the performance. If I wanted 80-100k to be what everyone should be able to produce I would be more inclined to do something like

$0-$45k - 4%
$46k-$80k - 8%
81k-$100k - 10%
100K - 120K - 12%
120K up - 14%

I would also not do monthly bonuses as standards (maybe as a contest) but do them quarterly and do them based on year to date sales volume, and I would only do them to reward those doing the 'norm' or above, certainly not below average and making up the difference of the 10% instead of 11% for doing the norm by the quarterly bonus.

1st quarter
$360,000-$400,000 sales = 1% bonus ($3600-4000)
400,001 - $480,000 sales = 1.25% ($4001-$4800)
$480,000 up = 1.5% ($7200)

2nd quarter
720,000-800,000 sales = 1% bonus ($3600-4000)
800,001 - 960,000 sales = 1.25% ($4001-$4800)
960,001 up = 1.5% ($7200)

and so on.
There is about maybe 50 benefits to a company doing a pay plan along those lines, too many to list all here, just a few are - motivation, satisfaction, financial rewards, employee retention and others.

Of course as said by me before, there would also always be a tie into customer satisfaction and estimating accuracy, a big one actually.

Ed the Roofer

Like I said before, this aspect has been my major shortcoming.

I would think the structure needed to flexible and fluid to account for a variety of different situations.

Grumpys approximate $ 5,000 + per jab sales would make it next to impossible for anyone to reach the 100,000 ultimate goal in a month.

The goals need to be within reach and be reasonable. If they are so far out of reach, you would be better off not inviting the criticism for having unattainable goals. Remember, I am basin this on an average sale of $ 5,000. If the $$ were significantly higher, then a dollar amount as stated before may also be considered.

I guess after reviewing the different comments, a small but tolerable base salary plus an incentive laden commission structure, which would be paid out per the percentage of monies collected to date unless outside financing for the entire project were the payment structure.


Rather than hitting key assigned dollar amounts for sales goals, I think I will work something up reflecting acceptable profit margin and premium profit margin which could be split proportionately.

Mike Finley

Ed, the only thing I would add is to create a pay plan that is a win/win. For the employee it has to make sense, and like you said, you hit it on the head, it has to be attainable, if it isn't attainable with a qualified and trained employee then it isn't fair to the employee. For the company really all you have to do is make a list of the things you want to achieve through these employees. If it's accuracy weigh some of the pay plan in that direction, if it's profits, weigh it in that direction, if it's showing up on time or parking in the right parking space or whatever the hell it is, just include it in the pay plan.

woodmagman

Keeping the salesman involved, the entire process helps with the problems of, he said, she said and encourages additional sales thru prospecting neighbours and friends. The best prospect in the world is the referred customer.
The job is not sold until the customer is satisfied.

Grumpy

Mike I used to use the sliding scale % but it was hell to keep track of. I'm probably going to push for the gross profit structure. I beleive it's more fair for the employee and employer. However I haven't made that jump yet.

Mike Finley

Are you setting this up so the salesperson can control and contribute to the profit of the job? Or is it just the roof is the roof and what it is, is what it is no matter who or how it is sold?

I have always loved being paid on profits, when I sold I was paid on profits and my grosses were ridiculously high, so high I used to get called in on them to find out what the hell was going on. I even had a discussion one time because somebody was convinced I was cherry picking deals, because they thought there was no way I could constantly have such high gross profits. His assumption was I was cherry picking the customers and blowing out anybody who wasn't going to be a high gross and only spending my time with those who would be. What he didn't understand is good salesman take advantage of the pay plan they have, if it's units or amount of individual sales, a good salesman will throw away the profit and move units and make lots of individual sales if that is what gets him paid the best. If it's gross profit a good salesman will focus on the profits of each deal and not on the amount of deals or jobs closed. The really good pay plans understood this and made sure there was a correlation between the two such as you are paid on a percentage of gross profits but your percentage is also tied into units, like

(gross profit / number of jobs sold) + $100 per job = pay check

High grosser salesman
Guy sells 12 jobs for a gross profit of $50,000 or $4166 a job. He gets paid $4166 + $1200 = $5366.00

Units salesman
Guy sells 22 jobs for a gross profit of 54,000 or $2454 a job. He gets paid $2454+2200 = $4654.00

Star performer
Guy sells 22 jobs for a gross profit of $110,000 or $5000 a job. He gets paid $5000+$2200 = $7200.00

The permeations are endless, you can throw in all kinds of modifications to manipulate your sales force this way and reward and promote your sales force to sell in the best way that benefits your company.

Tscarborough

I have only been fired from one job in my life and it was because I was making 3 times as much as the next closest waiter. On my exit interview, they told me my attitude was bad for morale. <shrug>

The only real issue was that I was tipping the kitchen and bus help so much that they took very good care of me and my customers.