Salesman Commission

 
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Old 12-02-2017, 05:38 PM   #1
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Salesman Commission


I am unsure how to pay my salesman. I own/operate a flooring company of 5 years and hired on a salesman last year. I pay him a base salary of $30,000 a year plus 10% of the profit of every job he sells. Last year that equated to $25K so he made $55K for the year. I fear I am overpaying him, as my top guy in the field only makes $21/hour. (About $42K a year) I have 14 full-time guys and 2 part-timers. Total sales last year was $1.2 mil. How are others structuring their salesman's pay? I would like to add another salesman to the mix but fear I can't afford to. Any insight would help, thanks.
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Old 12-02-2017, 05:52 PM   #2
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Re: Salesman Commission


What portion did he/she add to your business in that year? I'm not a fan of shorting the folks who keep the jobs coming.

The workers shouldn't know the annual pay for comparison, or is this mainly your thinking? Nip any animosity in the bud (including yours), reminding folks that sales are key to success.

On the other hand, maybe some kind of annual performance bonus for the rest of them is worth considering. A little something can go a long way.

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Old 12-02-2017, 05:57 PM   #3
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Re: Salesman Commission


I disregard being worried that he’s making more than the field guy. Who cares.


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Old 12-02-2017, 06:59 PM   #4
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Re: Salesman Commission


Unless he is paying car expenses, he is most likely underpaying his salesman.
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Old 12-02-2017, 10:59 PM   #5
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Re: Salesman Commission


For $1.2 million in sales he is underpaid. Margins would be large determining factor in that equation.
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Old 12-03-2017, 01:26 AM   #6
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Re: Salesman Commission


If he is bringing in 1.2 million in sales, he better be making much more than the field guys.

I guarantee that if your competition see this, they will pay him much more. Also, when he realizes how little he is making in relation to his sales, he will move on.

One way to allow him to earn more and not hurt your bottom line into give him par pricing.

If it costs you 12,000 dollars total, including your and the companies income to do a floor, then anything he sells for above that is his.

We used to do that when I sold. We would split the above par amount with the company, as we were also on salary.

If he is full time sales, he will and should make way more than the installers. Who in their right mind is going to bring in that kind of sales and do it for 15 bucks an hour.

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Old 12-03-2017, 09:46 AM   #7
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Re: Salesman Commission


I do my own sales and dont pay refferal fees currently but in general Construction around here 3% is a pretty good standard for a referral fee or Commission for a new house or large project. Obviously a Salesman doing General construction will get fired or not eat at 1.2 million in sales lol.

I would think it would be closer to 10% in flooring, but I have no idea. I would think 1.2 million in flooring is a pretty good salesman
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Old 12-03-2017, 09:52 AM   #8
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Re: Salesman Commission


Let me clarify a few things.

My sales guy will have brought in $495,000 by year-end. The other sales I have is from contracts I've had with other companies for years which he is not involved in. I also give him a truck to drive and pay for all his gas (personal too).

I'd be very interested in how other companies structure their sales pay.
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Old 12-03-2017, 09:58 AM   #9
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Re: Salesman Commission


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Originally Posted by FFlooring View Post
Let me clarify a few things.

My sales guy will have brought in $495,000 by year-end. The other sales I have is from contracts I've had with other companies for years which he is not involved in. I also give him a truck to drive and pay for all his gas (personal too).

I'd be very interested in how other companies structure their sales pay.
At 10% he's probably pretty close.

Did he hunt these leads down or did somebody just walked in the door?
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Old 12-03-2017, 10:24 AM   #10
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Re: Salesman Commission


BINGO JAWS! That's another issue I have. A good 70% of the sales that he does comes from referrals, and the job is nearly guaranteed ours we just have to show up/measure the job/provide a quote. The other 30% come from a new customer calling my office and we set up the estimate. He will them have to "earn" that business. So REALLY, do I even need a sales guy or just a measure guy who doesn't earn commission?

Remember, this is for a hardwood flooring business who installs/refinishes wood floors. I know other businesses would need to be structured differently.
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Old 12-03-2017, 10:24 AM   #11
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Re: Salesman Commission


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Originally Posted by FFlooring View Post
I am unsure how to pay my salesman. I own/operate a flooring company of 5 years and hired on a salesman last year. I pay him a base salary of $30,000 a year plus 10% of the profit of every job he sells. Last year that equated to $25K so he made $55K for the year. I fear I am overpaying him, as my top guy in the field only makes $21/hour. (About $42K a year) I have 14 full-time guys and 2 part-timers. Total sales last year was $1.2 mil. How are others structuring their salesman's pay? I would like to add another salesman to the mix but fear I can't afford to. Any insight would help, thanks.
I would never pay someone a percent of the profit because 10% of the profit plus the salary could be more than 40% of the gross sales.

You want to pay a total percent of the sale and that total percent has to include the salary.

You need to calculate what total percent of the sale you want to pay. For sales in my company, the very highest total percent we pay for only the sale is 8%. When you factor the installation labor, overhead, materials, your profit, etc., 8% is actually a very high number.

My company had 12 employee lawsuits in the past two years for fraudulent post-termination worker comp claims, unpaid back-wages and discrimination. Even though every worker received every penny he had coming, including overtime pay, I still have to pay attorneys and answer hundreds of questions about how my employees were paid and how my company calculated the pay based on an hourly minimum wage and commissions.

The problem I am encountering is that not one of my employees ever received a salary nor an hourly rate and even the attorneys do not understand the labor laws when it comes to calculating commissions and how to determine an overtime rate based on commissions. I even read two handbooks about that issue and the books don't make the laws clear.

Regardless, here is the problem with salaries and commissions. One employee who is suing my company is a grunt worth no more than the minimum wage at $10 per hour. I never paid this grunt an hourly rate. I paid him a percent, by the piece and commissions. I have a fairly sophisticated computer database and it tracks every job he worked on, the number of hours, the number of days per week he worked, the average number of hours per day and the total hours he worked during each week and his average earnings per hour.

This employee worked an average of 4 to 5 hours per day, 4 days per week and missed several weeks during each year. His total hours for one year was 1,375 hours when the average worker works 40 hours per week x 50 weeks = 2,000 hours.

This is the problem you run into. This worker earned an average of $23.00 per hour and never worked 1 hour of overtime. Regardless, of the fact that he did not work overtime, his attorney wants to know how any overtime rate would be calculated.

So, this is what the attorneys say. I cannot attach a $10 minimum wage rate to this employee for a basis for overtime because the employee's average earnings from commissions was $23 per hour. That means, if this is your carpet cleaning worker and he is sitting in your office waiting for a call you have to pay him $23 per hour to wait by the phone. If you send him to Starbucks to get you a cup of coffee you have to add $23 per hour to his pay. If he works overtime you have to base his overtime on $23 per hour.

You may not think about this, but when 'push comes to shove' you will wish you had your pay system right.

Here is one more scary thing about not paying an employee even $100 when he is terminated. The law states that the employee is entitled to the amount he is due when terminated plus that amount for a maximum of 30 days plus attorney fees, court costs, fines and penalties.

$100 + $100 time 30 = $3,100 + double that for the other costs and you now owe your employee more than $6,000

The reason I terminated the employee is because he stole a $6,000 Yamaha quadrunner from a customer and I found it parked at his home. The cost to repair the damage to the bike, the door he busted and the locks was $1700. The employee agreed to have the money deducted from his paycheck, but I did not get his agreement in writing. So, when he was terminated I owed the employee $446 for CAlifornia's Sick Leave Pay. I did not take one penny of the $1700 from his check, but I did not pay him the $446 for sick pay. Multiply the $446 x 31, add the penalties, other costs and I could end up paying more than $20,000 in costs.

It even gets more scary because if this employee's attorney thinks he has a good case he will contact all the other terminated and disgruntled employees and file a class action lawsuit. Then, we are talking about $1 million plus.

Luckily, for myself, I have a paperwork system that is flawless and the attorneys cannot find one penny that is missing. Then, it comes to the games that attorneys play. My employee's attorney will realize that he will not find enough problems to warrant the filing of a lawsuit and since everyone has to be a winner the attorney will try to get a few thousand dollars for himself.

One very interesting thing about this last lawsuit is that the attorney claims that he owns the lien for the lawsuit. The ex-employee mover from California to Maryland and probably does not know about the lawsuit. I think the attorney gets to keep all the money he wins.

The reason our paperwork for employees is so complete and accurate is because our employees sign time cards every week and they have to enter the number of hours they work every day and enter the number of hours for overtime. Every time card has statements that are critical to make sure employees know and acknowledge the laws pertaining to overtime, breaks and 1-hour uninterrupted lunch breaks. The time cards tell the employees that if they miss any break they have to document it on their time card, add 1 hour of pay if they worked during the break and they have to verbally tell a supervisor. Then, every bit of information is entered into the payroll database.

For example, our time cards have a statement something like this: "I acknowledge that I am entitles to a 10-minute paid break every hour and a 1-hour uninterrupted lunch break after working 4 consecutive hours and 1 uninterrupted lunch break every other 4 hours.

These rules apply to even commissioned outside workers and sales people because workers will file a lawsuit claiming that because they were paid a commission they had to work fast and did not have the opportunity to take breaks. I have heard this claim a hundred times. Nothing is ever the employee's fault!

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Old 12-03-2017, 04:34 PM   #12
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Re: Salesman Commission


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I am unsure how to pay my salesman. I own/operate a flooring company of 5 years and hired on a salesman last year. I pay him a base salary of $30,000 a year plus 10% of the profit of every job he sells. Last year that equated to $25K so he made $55K for the year. I fear I am overpaying him, as my top guy in the field only makes $21/hour. (About $42K a year) I have 14 full-time guys and 2 part-timers. Total sales last year was $1.2 mil. How are others structuring their salesman's pay? I would like to add another salesman to the mix but fear I can't afford to. Any insight would help, thanks.
55k for 495k in sales is a bargain. I know you other expenses yadda yadda. But to have a face man that can close that volume of deals you're getting an excellent deal.

I don't know how you're making money on that volume of sales however. I find Labor to be about a third. You're at like 550k in labor (including sales man). Then materials and tools is about what labor is. And boom you're at 1.1 million. I don't know I'd be cool with making a 100k on that kind of volume. This is assuming your full timers are making about 30k per annum. And no benefits. And not accounting for taxes.

Let me apologize in advance; its rude to count other peoples money but I just couldn't help myself. Maybe you could shed some light on the numbers. I've always avoided high volume low profit because it seems like it increases risk (injury, call backs) without reward (aside from not having to touch a tool). I currently run a low volume high profit model where labor expense is minimized.
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Old 12-03-2017, 04:41 PM   #13
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Re: Salesman Commission


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55k for 495k in sales is a bargain. I know you other expenses yadda yadda. But to have a face man that can close that volume of deals you're getting an excellent deal.

I don't know how you're making money on that volume of sales however. I find Labor to be about a third. You're at like 550k in labor (including sales man). Then materials and tools is about what labor is. And boom you're at 1.1 million. I don't know I'd be cool with making a 100k on that kind of volume. This is assuming your full timers are making about 30k per annum. And no benefits. And not accounting for taxes.

Let me apologize in advance; its rude to count other peoples money but I just couldn't help myself. Maybe you could shed some light on the numbers. I've always avoided high volume low profit because it seems like it increases risk (injury, call backs) without reward (aside from not having to touch a tool). I currently run a low volume high profit model where labor expense is minimized.


Been thinking since I read this (Original post numbers) We used to do $500k with me and two guys for many years with no office etc. I wouldn't run 16 guys unless I'm making 4-500k a year to put up with the aggravation. (Some people deal with stress better than me )


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Old 12-03-2017, 05:26 PM   #14
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Re: Salesman Commission


Metro, no need to apologize for anything. This is great input! You're nearly spot on with your labor cost, however the materials is not that high. About 50% of my business (little over $500,000) comes from stores who sub out their work to me. They provide all material, and pay me the labor to install the product. This is why material cost is down from your estimate. HOWEVER, I'm trying to rely less on the stores and get my own business more as I can make a couple extra bucks on selling the product as well.

Metro, since you're a flooring guy I'm very interested in how you operate your biz. Do you have a salesman? Or are you personally doing the estimates?
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Old 12-03-2017, 10:26 PM   #15
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Re: Salesman Commission


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I am unsure how to pay my salesman. I own/operate a flooring company of 5 years and hired on a salesman last year. I pay him a base salary of $30,000 a year plus 10% of the profit of every job he sells. Last year that equated to $25K so he made $55K for the year. I fear I am overpaying him, as my top guy in the field only makes $21/hour. (About $42K a year) I have 14 full-time guys and 2 part-timers. Total sales last year was $1.2 mil. How are others structuring their salesman's pay? I would like to add another salesman to the mix but fear I can't afford to. Any insight would help, thanks.
I would be encouraging him to make 75k (base + 45) next year, and 100k (base +70) the next
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Old 12-03-2017, 11:37 PM   #16
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Re: Salesman Commission


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Metro, no need to apologize for anything. This is great input! You're nearly spot on with your labor cost, however the materials is not that high. About 50% of my business (little over $500,000) comes from stores who sub out their work to me. They provide all material, and pay me the labor to install the product. This is why material cost is down from your estimate. HOWEVER, I'm trying to rely less on the stores and get my own business more as I can make a couple extra bucks on selling the product as well.

Metro, since you're a flooring guy I'm very interested in how you operate your biz. Do you have a salesman? Or are you personally doing the estimates?
I'm small potatoes. I might hit 300k this year, not sure but probably more like 260-275. I work on all jobs, do all the sales, all the bookkeeping and keep labor to about twenty percent of sales. I generally walk away with about a third of sales. I work hard for it though; but I think trying to manage 7 two man crews doing 14 residential jobs a week would be way way way harder, for almost the same dinero it would seem.
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Old 12-04-2017, 12:16 AM   #17
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Re: Salesman Commission


Quote:
Originally Posted by FFlooring View Post
I am unsure how to pay my salesman. I own/operate a flooring company of 5 years and hired on a salesman last year. I pay him a base salary of $30,000 a year plus 10% of the profit of every job he sells. Last year that equated to $25K so he made $55K for the year. I fear I am overpaying him, as my top guy in the field only makes $21/hour. (About $42K a year) I have 14 full-time guys and 2 part-timers. Total sales last year was $1.2 mil. How are others structuring their salesman's pay? I would like to add another salesman to the mix but fear I can't afford to. Any insight would help, thanks.
Keep in mind that the sales are what funds EVERYTHING ELSE...

You'll find more success by putting the focus on where you want the sales numbers to increase.... I'd encourage you to switch from a percentage of the Profit to gross sales on a sliding percentage based on sales results... not to mention it will give you a good reason to make changes and even adjust the base salary lower to place the incentive on sales while at the same time demonstrating how the salesperson can increase their income through more sales...

You're paying him a salary plus vehicle, but where you are probably having trouble lighting the fire is with quota's... For example (adjust accordingly to your companies actual needs)...
$1 - $10,000 = $5%
$10,001 - $20K = 6%
$20,001 - $35K = 7%
$35,001 - $60,000 = 8%
$60,001+ = 10%
Figure in all your commission costs at the top commission rate (in this case 10% of the gross) in your pricing structure, so it is easily assigned and accounted for as a fixed cost and also funds the following...

And then have incentive/bonus programs (monthly and yearly) to spur sales quota's/production... for example...
- Exceed top quota by 10% (i.e. - $55K in this example), get a BONUS on top of commission of 1% of total sales for the month or a bonus of $550...

- Exceed top quota by 20% (i.e. - , get a BONUS on top of commission of 2% of total sales for the month
The money to fund these bonuses COMES from the commission structure because your pricing incorporates 10% of the gross as a baseline even though they will not be hitting the top commission level each month... as well as, your Profit should be a percentage based on ALL your costs including commissions...

If your salesman only closed $25K one month, is commission would be $1,750 but your pricing structure would have incorporated $2,500 (10%) leaving $750 towards the bonus fund...

You want to incentivize the salesperson to sell that one more deal each day, week, month, quarter, year... if you don't do it already, teach them how to farm the warm market of their sales... Self-generated sales typically are also given an incentive (can be a $100) as it is a cost the company does not incur and is business you allocated that you wouldn't have in normal operation if you don't have a referral program...

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Old 12-04-2017, 08:40 AM   #18
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Re: Salesman Commission


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Keep in mind that the sales are what funds EVERYTHING ELSE...

You'll find more success by putting the focus on where you want the sales numbers to increase.... I'd encourage you to switch from a percentage of the Profit to gross sales on a sliding percentage based on sales results... not to mention it will give you a good reason to make changes and even adjust the base salary lower to place the incentive on sales while at the same time demonstrating how the salesperson can increase their income through more sales...

You're paying him a salary plus vehicle, but where you are probably having trouble lighting the fire is with quota's... For example (adjust accordingly to your companies actual needs)...
$1 - $10,000 = $5%
$10,001 - $20K = 6%
$20,001 - $35K = 7%
$35,001 - $60,000 = 8%
$60,001+ = 10%
Figure in all your commission costs at the top commission rate (in this case 10% of the gross) in your pricing structure, so it is easily assigned and accounted for as a fixed cost and also funds the following...

And then have incentive/bonus programs (monthly and yearly) to spur sales quota's/production... for example...
- Exceed top quota by 10% (i.e. - $55K in this example), get a BONUS on top of commission of 1% of total sales for the month or a bonus of $550...

- Exceed top quota by 20% (i.e. - , get a BONUS on top of commission of 2% of total sales for the month
The money to fund these bonuses COMES from the commission structure because your pricing incorporates 10% of the gross as a baseline even though they will not be hitting the top commission level each month... as well as, your Profit should be a percentage based on ALL your costs including commissions...

If your salesman only closed $25K one month, is commission would be $1,750 but your pricing structure would have incorporated $2,500 (10%) leaving $750 towards the bonus fund...

You want to incentivize the salesperson to sell that one more deal each day, week, month, quarter, year... if you don't do it already, teach them how to farm the warm market of their sales... Self-generated sales typically are also given an incentive (can be a $100) as it is a cost the company does not incur and is business you allocated that you wouldn't have in normal operation if you don't have a referral program...
This was a nice post and makes a lot of sense.

I find that employees are not like the boss. The boss's gears are always grinding and employees don't want to think. Paying on a sliding scale is too complicated for the employee to think about and too complicated for the paperwork and tracking. Paying on a sliding scale is like playing mind games.

"If you are a really good boy you will get more money AT THE END"

Don't pay an employee less and then give an increase because it is like you are robbing the employee in the beginning of the year. At the beginning, he is worth ONLY 5% for the same sale he gets 8% at the end of the year.

I never give employees quotas because quotas put pressure on people. Sales people are either hungry and self-motivated, or they are not. They either produce, or putting a bomb under their butt will not get them to do any work. I would never call someone into my office to tell them that they did not meet a quota.

Workers either come to work to make money, or they come to work because they are programmed like a robot to be at your workplace at a specific time. You cannot make people want to make money. They either want to make money, or they don't. When your employee wants to make $50,000 per year when you know he can make $100,000 per year there is nothing you can do, but add another sales person to your sales force.

I have 5 100% pure sales people at my company and our meetings never discuss pay schedule changes nor quotas because my employees are full-grown men and every one of them wants to make as much money as possible.. They want to make as much money as possible. The only thing we discuss at our meetings is safety and better ways to close sales. Our discussions about changing our pay system ended more than 20 years ago.
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Old 12-04-2017, 10:58 AM   #19
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Re: Salesman Commission


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This was a nice post and makes a lot of sense.

I find that employees are not like the boss. The boss's gears are always grinding and employees don't want to think. Paying on a sliding scale is too complicated for the employee to think about and too complicated for the paperwork and tracking. Paying on a sliding scale is like playing mind games.

"If you are a really good boy you will get more money AT THE END"

Don't pay an employee less and then give an increase because it is like you are robbing the employee in the beginning of the year. At the beginning, he is worth ONLY 5% for the same sale he gets 8% at the end of the year.
They set their own paycheck each month based on what they close... the more they close the higher percentage they make and the company as a whole benefits... 10% should be what they're after for performers... bonuses are a separate issue... you don't want them focusing on the lower percentages, that's how you find the performers and the water treaders...

As to tracking it, it's really not much different than different employees with different pay scales...
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Old 12-05-2017, 07:28 AM   #20
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Re: Salesman Commission


With windows, a good sales guy gets 8% par.. 8% of the total sale.
If your sales guy is reliable and is making sales, keep him happy. Its called team work. If he doesnt feel appreciated, a good sales guy will move on.
As far as referrals.. just because its a referral doesnt mean its a slam dunk. He still needs to sell the customer.

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Last edited by Windowcentric; 12-05-2017 at 07:31 AM.
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