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A Sales Compensation Plan that Supercharges ProfitsHere is the single most powerful trick I know for supercharging your bottom line.by Ron Roberts, "The Contractors' Coach 
At some point in time, if you are going to grow your sweeping business into a concern that operates more than a couple of sweepers, you are going to need someone working on sales full time. Now, maybe sales is your thing and you want to do that full time. Fantastic. It's almost always best when a business owner is committed to selling. However, even if you sell successfully, over time you may still end up wanting to add another salesman. If sales isn't your thing, then you will definitely need to hire a salesman if you want to become a real player in your market. Either way, you are going to be faced with the critical decision of "How should you pay your new salesman?" Draw (salary) plus commission? Bonuses based on sales generated? Increased commission with increased sales volume? A higher commission for new customers? Straight salary with strong oversight? All of these are commonly used approaches. Not one of them is likely to produce the profit results you seek. If you let your salesman have his or her way, s/he will want a draw plus commission. Most will ask for a pretty stout draw and a relatively modest commission based on revenue sold. Don't agree to that! Draw plus commission lines the pockets of your salesman regardless of whether s/he is making you any money. The purpose of draw plus commission is to drive sales volume. Don't fall into the trap of thinking sales volume is important. Rather than just volume of work, you need your salesman to focus on PROFITABLE work. Let your competition sell the unprofitable work. That's work you don't want and you certainly don't want your own salesman bringing it to you. How do you get your salesman to chase profitable work? You align his pay to profit. Put in place a pay plan that rewards for profitable work and punishes for unprofitable work. Basically, make him or her a pseudo-partner. It is surprisingly easy to do and I'm going to show you how.
2. S/he should be guaranteed a minimum income, whether the earned commissions surpass it or not. 3. The commission rate should stay the same regardless of sales volume or profit generated. 4. If s/he doesn't earn his guaranteed minimum income within a reasonable time period, say 18 months, the salesperson is replaced. With this approach your salesperson will be highly motivated to ask for the highest price possible. He will not leave $100 on the table, because with a 20% commission, he would be leaving $20 behind. An example will drive the point home quite clearly. Let's say your salesperson has estimated that the total costs of sweeping (or other service you provide) will run $10,000 over the time period of the contract or through completion. Let's look at how the usual approach, draw plus commission, compares against my recommended approach for driving desired sales behavior. The salesperson being compensated with the standard salary plus 2% of sales has little incentive to risk losing a sale by raising price. If s/he sold the job at cost, the commission earned would be $200. If the job was sold for $15,000, a $300 commission would be earned. The potential gain in commission would only be an extra $100 (if sold at $15,000) and yet that price would substantially increase the likelihood of losing the job. The point: You salesperson will not raise the price to $15,000 just to earn an extra $100. Of course, you lose money if the job is sold at $10,000 but the salesperson doesn't care as long as it's all about volume, right?
Now, let's look at my recommended approach.Your salesperson earns nothing when the job is sold at $10,000. However, $1,000 is earned when the job is sold for $15,000, and a whopping $2,000 is earned when the job is sold for $20,000. As you can readily see, under my system the salesperson will be very motivated to pursue the highest price possible. Very, very motivated! Do to the potential windfall that can be earned, your salesperson will become a master at qualifying customers. Little time will be spent on price sensitive customers (who also happen to be the ones who tend to be the fussiest about nit-picking everything about the job that you do...). Rather, your salesperson will aggressively pursue the customers who value your company's superior services and are willing to pay for them. These are exactly the customers you want to be pursued because not only are they profitable; they tend to be far more loyal and far more willing to refer you to their friends, family, and professional associates. Look at what you get when you are paying a 20% commission on gross profit. You pocket $4,000 for every $5,000 of gross profit your salesperson generates. Sure, a great salesperson will make a killing with this type of pay plan, but you're going to make an even greater killing. You want your salesperson earning $200,000 because that means s/he is contributing $800,000 to your OH&P. Imagine having four such salespersons in your company. How well off would you be? This is the type of pay plan that will draw top salespeople like flies. Where else in the sweeping industry, or any industry, are they going to have a chance to make that kind of money? You know the difference between a $50,000 salesperson and a $200,000 salesperson? You go broke with the first and get rich with the second! In summary, the best way to supercharge your bottom line is to implement a sales commission plan that rewards your sales force for generating gross profit. In doing so, you will make sure that they have your best interest in mind. More information about Ron Roberts' and his company may be found on his website FilthyRichContractor.com You'll also find a link to sign up to his informative e-newsletter on his site. You may also reach Ron via email sent to ron@filthyrichcontractor.com. 
This article was added to WorldSweeper.com in 7.07. |
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