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How do you pay a Sales person?

15K views 11 replies 9 participants last post by  safety-qc 
#1 ·
I am looking to hire a SP. I cannot pay by hour since I don't know what they will bring. I was thinking a %, but not sure how much???? Any sales person out there, that can assist? I am a Remodeling Contractor. Thanks:blink::shifty:
 
#2 ·
As with most things, theres more than 1 way of doing it. Some base salary plus mostly commision, mostly salary and a small comission, all commision, commision based on gross profit, commision based on total sale.

In the end you'll have to decide whats best for you and your buisness model.

For me, I am paying 575 per week base plus 6 percent on the ticket and any reimburments for out of pockets like car, cell phone, gas, etc.

I have made my basis on the fact that we dont do anything in the winter but they still gotta eat. At 575 per week that slike 30K per year. 6% of a target of 1 mil in sales is 60K and auto and other expenses wil take them close to 100k. I also pay the 30k for all the other non direct new sale stuff they may need to do, like repeat sales. I can get a monkey to measure and propose. I dont want to pay high commisions on that work.

I currently do it on the ticket amount but I use to do it on the gross profit. The issue we had with that was if we had a problem in the field it was landing on the sales person and it wasnt thier fault so why take it out on them. If the job approved good by me or my super than thats it, we accept it and the sales man gets paid now.
 
#4 · (Edited)
I am looking to hire a SP. I cannot pay by hour since I don't know what they will bring. I was thinking a %, but not sure how much???? Any sales person out there, that can assist? I am a Remodeling Contractor. Thanks:blink::shifty:

AD:
My 30,000 foot overview is:
  1. Do unto others ...
  2. Figure out what is a 'reasonable' sales target (quota) for an experienced sales person - based on what you sell.
  3. Figure out what your gross profit on that amount is.
  4. Figure out what would be decent compensation for a person generating that quota @ that % profit. (Subtracting the compensation from the gross profit leaves you your net profit).
  5. Pay 100% commission, with a draw... and set the max draw at something like 33-50% of the estimated monthly average
  6. Figure out if you're going to hire them as a W2 employee or an independent contractor; research this in depth - as the IRS frowns on independent contractors UNLESS the independents actually generate income from somewhere else too. There are tax / legal benefits for both parties that are GREAT though - and in general I personally like this 1099 scenario.
  • For experienced, quality sales people that you're trying to pull from the competition, or who won't start because maybe your average sales cycle is 90 days ... offer them a RAMP (meaning that their first month with the company, they receive 100% of their estimated monthly compensation (and the amount is not attributed to the draw), the 2nd month, they receive 1/2 of the monthly amount - plus their draw, and the third month they receive 1/4 of the monthly amount, and then their draw.
  • Build into a per job bonus program; they sell a job ABOVE standard margins, then they share in the additional revenue. [If your estimate process says a job should be quoted at $15,000, but they sell it at $18,000 (and the job comes in as a $15k job & profitable), then give them a decent % of the $3k. This will encourage them to SELL and not give jobs away]
  • Build into the plan a kicker program - if they KILL their annual quota, they should get MORE commission, not less.
  • Build a linkage into PROFITABILITY. Non profitable jobs should NOT contribute to their quotas. (Careful with 'penalizing' them for jobs which lose money; in California it is ILLEGAL to subtract the losses from a job from a profitable job regardless of their W2 or 1099 status).
EXAMPLE:
  1. You expect them to sell $1M in revenue
  2. You expect to make $300k in gross profit
  3. You offer them 7% of revenue, assuming the job makes 30% gross profit; meaning you'll end up making 23% net (above and beyond COGS & overheads). Let's say he'll end up making about $72,000 at quota.
  4. You offer him a draw of 40% ... or 40% of $6,000 per month = $2,400. You offer a maximum of 4months ($9,600) draw.
  5. SP gets the ramp program to start.
1st month, you pay him (weekly IMO) $1,500 gross/week. None is attributed to the draw balance.
2nd month, you pay him $750/week + you give him the option of taking his 'draw' of $600/week
3rd month, you pay him $375/week + you give him the option of taking his 'draw' of $600/week
4th month, you give him the option of taking his 'draw' of $600/week. He should be closing jobs during this month.


I used to pay my 'above & beyond' commissions (which were when the sold the customer on our quality vs the other guys, which justified to the customer's mind the higher price) quarterly ... and I charged back for any job that was negative due to sales error.
 
#6 ·
We are a specialty contractor and do Vinyl Siding, Replacement Windows and Sunrooms. Only me and my partner sell now.
When we did have salesmen we paid them 10% of the sale price. We made up the price sheet so there couldn't be to many mistakes.
If a mistake was made like the salesman sells a siding job for 20 sq. but it actually comes in at 22 sq. the salesman would pay the difference out of his commision. It was my job to remeasure the jobs ASAP so we would know if a mistake was made during the 3 day recission period. That way if a mistake was made the salesman had an opportunity to go back to the customer and explain the mistake and see if he could get more. He could also give the customer their deposit back and explain to them the mistake that was made and explain to them that we could not accept the contract as is. Or he could say just do the job an I'll accept the lower commision. This did not happen more than once or twice with any salesman. Once they know that they are accountable for there mistakes they usually don't make them again.
 
#7 ·
It's interesting how laws are different state to state. In California, a contractor can not back out of a contract once its signed in this scenario. Signed is signed; the contractor can't benefit from the 3 day period.

Something we always did was to speculate the # of SQs of roofing - or # of feet of gutters. So if it was a mis-measurement, then we could justify an increase. We tried to specify as much as possible, mostly so that we could point to our 'attention to detail.'

I've a question - did you provide a way for the salesperson to make more commission if he sold above your standard markup?
 
#8 ·
I am looking to hire a SP. I cannot pay by hour since I don't know what they will bring. I was thinking a %, but not sure how much???? Any sales person out there, that can assist? I am a Remodeling Contractor. Thanks:blink::shifty:
I pay on the net profit of the job. between 5% & 10% after variable expence ( material, gas , all expenses they have contol over)
 
#9 ·
As a long time and very successful salesperson, sales manager, and business owner, I can only offer these tidbits:

Pay on estimated GPM. That is, what the GPM will be if the job goes as planned when bid. Provided it is bid correctly, of course (but why approve a bid if it is not correct?) If the salesperson will not agree to this, then you should not hire them.

Pay 100% commission, plus expenses, after a trial period of 90 days when you pay 70-80% of expected commissions. If the salesperson will not agree to this do not hire them.

Salespersons are responsible for collections. Period.

Make the payment plan simple enough that the salesperson can calculate their commission on a daily basis.

Unless you pay a base salary, do not require or expect call reports, demand that the salesperson keep certain hours, or have to report to the office. Expenses should always be documented, of course.

All good outside sales people are temperamental, territorial, egotistical, and jealous of their perks. They are the pointy end of the spear of your business, and are first in line for ass-chewings, even if the fault is not their own.

Make it clear to the back office that their customer is most often the salesperson, NOT the client. That is to say, the services provided by accounting, billing, etc., should be focused on assisting the salesperson to sell, close, and collect.

Last but not least, do not bother calling a good salesperson after noon on Friday.
 
#10 ·
If I were within 50 miles, I'd make a point of taking you for lunch.

Great post.

I especially liked (2 things you touched on that I'd forgotten) - they're large sized babies, and they are the customer of the people in the back office.
 
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