Nothing happens until somebody sells something . . . for a profit.
If you employ a salesperson to help you sell something, for a profit, you need to pay them for their services. I am a firm believer in paying sales people by commission, a percent of the gross sales price of the job.
Paying commission based on gross or net profit seldom works for long, because the salesperson has no control over how the job is built and isn’t able to keep watch on job costs. They aren’t responsible for building the job, so their pay shouldn’t be dependent on how efficiently the job is built. Many business owners use this method to keep their salespeople from selling a job cheap.
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There are better ways to prevent having jobs sold short; review and approve every contract before it’s final. Every estimate should be reviewed before the price is quoted; every contract should have a clause stating it’s subject to office approval.
You must be fair and pay a commission that makes sense. In my experience, for remodeling or renovation jobs, 8% of gross sales is about right, with the opportunity for bonuses based on performance. All the good contractors I know pay their salespeople at least 8% or more with bonuses that can add an additional 4% to that figure for a total commission of up to 12% of the sales price.
If you’re thinking, “I can’t afford to pay that much commission” or “They’ll make more than I do”, then you don’t understand or value what a salesperson can do. Sales are the lifeblood of your business. Worrying about the amount of commission you are paying can also be a sign that you are more worried about the sales price than you are about making a profit on the jobs you sell, build and collect. Thinking that way is not good for long term survival.
A quality salesperson will earn every bit of what you pay them, because nothing happens until somebody sells something.
We discuss paying salespeople in our book, Profitable Sales, A Contractor’s Guide.
Related Articles:
Pay Salespeople Fairly: Commission Sales
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.