I wish I had a dollar for every time a BSC has asked me that question. This area is one of the most discussed areas in all of cleaningdom. Do I pay salary only? Salary plus commission? Commission only? If commission, how much? So let's review a few compensation plans and give you my personal favorites and why.
SALARY ONLY
My opinion of this method is that if a sales representative wants a "salary only" position they are not confident of their ability to bring business in the door. If you agree to pay them in this manner you will almost always end up making them a "former" sales person and the only one who made any money was them. I strongly recommend this method not be used.
SALARY PLUS COMMISSION
Nearly all of the companies I have familiarity with use some variation of this method. It usually consists of a negotiated "livable" base salary plus a car allowance.
Determining the commission structure is usually the tricky part. There are probably about as many types of commission plans being used as there are sales people. Here are a few plans that I am aware of:
------The sales representative receives a percentage of the first months billing payable 30 to 45 days after the contract is started. The percentage can be anywhere from 15% to 40%. The important issue here is there needs to be a check and balance as to pricing of the contract. Many organizations require that before a proposal can be presented, the ownership, operations, and sales departments have to "officially" initial that they have reviewed and approved the pricing. If disagreements occur, they are discussed and then agreed upon BEFORE the presentation is made to the prospect.
------Here the commission paid is a percentage of gross profit that has been agreed upon, again by all departments prior to the sales presentation to the prospect. The amount of commission can be 1, 2, or 3 months gross profit or a percentage of 1,2, or 3 months gross profit.
This method has to have certain guidelines as to "is the gross profit amount agreed to before the sale or is it paid on the actual gross profit generated"?. The first method requires the Operations department to deliver what everyone agreed to whereas the second method pays the sales person on what the Operations department actually delivered. You can imagine the disagreements that can occur if the Operations department doesn't deliver what they agreed to deliver.
------This method pays a percentage of one months contract billing based on the actual labor performed in the second month of the contract AND the percentage will be different dependent on types of accounts sold. Here again, a requirement is that ownership, operations, and sales agree on the projected labor and selling price prior to the presentation being made.
The reason for the different percentages allows for the company to direct the sales department toward the types of accounts it wants in its portfolio. For example, if you are wanting to expand your industrial or medical account base you would increase the percentage of commission paid as well as increasing it on higher volume at acceptable lower labor costs.
I used this method for several years very effectively and it allowed us to increase our customer base AND DO IT PROFITABLY in the areas we wanted to grow. We paid handsome commissions but we also accomplished what we wanted. Our sales people liked it as well because it really focused them on the types of accounts to spend their time on. We paid almost nothing for retail and tenant occupied buildings because that was not our focus. We concentrated on owner occupied, industrial and medical facilities and the system work very well.
Because our company relied very heavily on selling consumables to our customers we also paid the sales person commission on those type of sales made to the customer for a certain period of time--usually 1 year. We did not ask the sales person to make calls to obtain the consumable sales. They were to negotiate that with the contract sale and then our operations department took it from there. This was a very nice add on, profitable business for us.
------This method pays an ongoing monthly commission for as long as the company has the account. This provides for the sales representative to receive 1,2, or 3 percent of the monthly billing with no more selling needed to that account. Some companies will ask the sales representative to make customer relations calls to justify the monthly commission. Want to start a real fight in your organization? Have the sales person make those calls. It creates havoc in the organization AND it keeps the sales person from doing what you are paying them to do---SELL.
Some companies use a variation of this system by paying a higher amount the first year, a lesser amount the second year, and then eventually phasing out the commission completely.
I personally am not a fan of the ongoing commission structure as I believe sales people can become complacent and "get comfortable" with their salary and ongoing commission. I firmly believe you pay an attractive commission one time and provide the appropriate support of the sales people and then expect them to succeed.
In a later blog we will discuss the management of sales people as well as you can manage a good sales person, but for now I want to emphasize that you hire sales people to SELL, not put sales proposals together or do mailings etc. You want them in front of prospects closing sales not in the office doing work that the support staff should be doing. The fact is, good sales people WON'T do it. They want to be out beating the bushes.
This subject could be discussed forever but we are going to stop here and as I said earlier we'll discuss other parts of sales and sales management in future discussions.
Don't forget to listen to our weekly free tripodcast at www.tripodcast.com. We enjoy doing them and hope they are helpful to you as well.
Till next time.
Determining the commission structure is usually the tricky part. There are probably about as many types of commission plans being used as there are sales people. Here are a few plans that I am aware of:
------The sales representative receives a percentage of the first months billing payable 30 to 45 days after the contract is started. The percentage can be anywhere from 15% to 40%. The important issue here is there needs to be a check and balance as to pricing of the contract. Many organizations require that before a proposal can be presented, the ownership, operations, and sales departments have to "officially" initial that they have reviewed and approved the pricing. If disagreements occur, they are discussed and then agreed upon BEFORE the presentation is made to the prospect.
------Here the commission paid is a percentage of gross profit that has been agreed upon, again by all departments prior to the sales presentation to the prospect. The amount of commission can be 1, 2, or 3 months gross profit or a percentage of 1,2, or 3 months gross profit.
This method has to have certain guidelines as to "is the gross profit amount agreed to before the sale or is it paid on the actual gross profit generated"?. The first method requires the Operations department to deliver what everyone agreed to whereas the second method pays the sales person on what the Operations department actually delivered. You can imagine the disagreements that can occur if the Operations department doesn't deliver what they agreed to deliver.
------This method pays a percentage of one months contract billing based on the actual labor performed in the second month of the contract AND the percentage will be different dependent on types of accounts sold. Here again, a requirement is that ownership, operations, and sales agree on the projected labor and selling price prior to the presentation being made.
The reason for the different percentages allows for the company to direct the sales department toward the types of accounts it wants in its portfolio. For example, if you are wanting to expand your industrial or medical account base you would increase the percentage of commission paid as well as increasing it on higher volume at acceptable lower labor costs.
I used this method for several years very effectively and it allowed us to increase our customer base AND DO IT PROFITABLY in the areas we wanted to grow. We paid handsome commissions but we also accomplished what we wanted. Our sales people liked it as well because it really focused them on the types of accounts to spend their time on. We paid almost nothing for retail and tenant occupied buildings because that was not our focus. We concentrated on owner occupied, industrial and medical facilities and the system work very well.
Because our company relied very heavily on selling consumables to our customers we also paid the sales person commission on those type of sales made to the customer for a certain period of time--usually 1 year. We did not ask the sales person to make calls to obtain the consumable sales. They were to negotiate that with the contract sale and then our operations department took it from there. This was a very nice add on, profitable business for us.
------This method pays an ongoing monthly commission for as long as the company has the account. This provides for the sales representative to receive 1,2, or 3 percent of the monthly billing with no more selling needed to that account. Some companies will ask the sales representative to make customer relations calls to justify the monthly commission. Want to start a real fight in your organization? Have the sales person make those calls. It creates havoc in the organization AND it keeps the sales person from doing what you are paying them to do---SELL.
Some companies use a variation of this system by paying a higher amount the first year, a lesser amount the second year, and then eventually phasing out the commission completely.
I personally am not a fan of the ongoing commission structure as I believe sales people can become complacent and "get comfortable" with their salary and ongoing commission. I firmly believe you pay an attractive commission one time and provide the appropriate support of the sales people and then expect them to succeed.
In a later blog we will discuss the management of sales people as well as you can manage a good sales person, but for now I want to emphasize that you hire sales people to SELL, not put sales proposals together or do mailings etc. You want them in front of prospects closing sales not in the office doing work that the support staff should be doing. The fact is, good sales people WON'T do it. They want to be out beating the bushes.
This subject could be discussed forever but we are going to stop here and as I said earlier we'll discuss other parts of sales and sales management in future discussions.
Don't forget to listen to our weekly free tripodcast at www.tripodcast.com. We enjoy doing them and hope they are helpful to you as well.
Till next time.
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