There are lots of opinions on how to pay a salesperson. But here is the bottom line: your salespeople have to be able to make a good living and provide for their family or your system won’t work.
If you were a salesperson, how would you want to be paid? If you were to work for yourself, would you be okay with the rules you’ve established for paying your salespeople? When I’ve asked coaching clients that question, I often hear a “YaBut” response. That’s not good.
A salesperson needs to be able to pay their bills. In my opinion, today, that means they need to be making at least $5,000 a month. I personally would not hire anyone that did not want to make at least $80,000 year, but maybe I expect a little more of those who would work for me. Sales requires a great deal of self-discipline and determination, and if the salesperson is willing to settle for a low salary, they aren’t interested in working hard.
I also wouldn’t hire a salesperson who insists on being paid a salary, an hourly wage, or base plus commission. That’s a sign that they aren’t confident in their ability to sell. If they aren’t confident, how can they sell to others?
Salaries, base plus commission, or any kind of a guaranteed pay gives a salesperson a reason to not sell. Sales is hard work, and working on straight commission gets folks up and to work, and making money. I started selling remodeling in 1969 and with one brief, painful exception, I always worked straight commission. I turned down countless offers from companies offering work on a salary or base plus commission. I’m not interested. With straight commission, the sky is the limit. That way I can set my own salary, thank you very much.
If you have sales people working for you, their job is to bring in as much good, profitable work as they can sell. If you are paying them anything other than straight commission, where is the motivation to sell? There isn’t one.
I’m not saying this to encourage business owners to save money by underpaying their sales staff. I’m saying this because I’ve been a salesperson for years, and I know that:
- the best sales people work on commission only, and
- sales people work best on commission only.
I have talked with many successful contractors whose sales teams do very well for themselves, and that means the company prospers. Generally, those selling new homes are paid anywhere from 1% to 3% of the sales price. Those selling remodeling or renovation work earn about 8% of gross sales. Specialty salespeople earn 6% to as high as 10%. And they all can earn additional bonuses for such things as zero complaints (from clients, subcontractors or suppliers), generating their own leads, gross profits that exceed a company minimum standard, no change orders, exceeding annual sales goals, etc.
If you have a good sales person selling on commission only, you’ll be paying them far more than their current salary. And they’ll be making far more sales. The good ones in this business are always looking for a challenge. If they are on straight commission, they are going to get the job done or they and their family won’t eat. It’s both a challenge and a marvelous opportunity, because the more they sell, the more money they make.
If you treat your sales people right, you’ll make far more money than you’ll ever save by trying to beat them out of a dollar. If you owe them, pay them. Hold them accountable for all the work they do, but if they do their job correctly, pay them fairly and on straight commission. Then sit back and watch them sell.
We talk about how a salesperson should be compensated in Profitable Sales; A Contractor’s Guide.
Related Articles:
Paying a Salesperson: Commission on Sales, not Profit
The Downside of Commission Sales
Penciling a Salesperson
Should Salespeople Have to Generate Leads?
The Salesperson’s Real Job
Referral Fees and Sales Commissions
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.
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