Question
Our company is still trying to grow despite the economy. What is the best way to set up a contract with a commission sales person? He is to find work and sign contracts on behalf of the company. We have in-house designers and support staff to handle the client beyond his contact.
How do you handle discounts and short sales? Our sales cycle for custom cabinets has a very long time frame in most cases. Should we pay out commission only when the job is 100% paid for? How much are professional sales people with little knowledge of cabinetry paid? And what about commission deductions, i.e. mistakes in measurement?
Forum Responses
(Business and Management Forum)
From contributor W:
From my experience, you are on the right track in attempting to keep salespeople out of the process after the sale.
I do have a couple of suggestions. Expecting your sales people to determine the creditworthiness of customers is putting control of that critical step in the hands of someone whose personal interests lay in making more sales and, as a result, extending more credit. Your accountant or another administrative person would be a better alternative. I believe most sales people worth a darn will be okay with holding commissions until a job is paid, but if you take deposits, that should count toward their commissions.
I have also found it better to have measurements and templates done by installers, not salespeople. It seems that the two skills required are completely alien to each other, and removing responsibility for final measurements from salespeople removed a great deal of finger pointing after errors turned up in the form of finished cabinets. I compensated installers with a flat rate for measuring jobs, and the resulting improvement in the rate of errors paid for it ten times over and made the installers happier people.
I don't think you want anyone selling your cabinets who knows nothing about them. I also found it very helpful to have my salespeople work (observe) in the shop for a week before they even tried to sell - it gives a very valuable perspective on how things work!
Unless you are paying out a draw or salary as part of the commission package, these people have to live. The quickest way to de-motivate a salesperson is to not provide them instant gratification with compensation they will think they are due after 3 days Rite of Rescission.
A full commission salesperson is going to want a substantial piece of the pie (8-13%), as they have to live on full commission. Once the deal is signed, and deposit check issued, you should be issuing them at least 75% of the commission upfront and that last 25% at the end. This allows for variances in what they sold.
Put that 25% in a commission-bank that is paid quarterly. They must be employed to receive the remaining 25%, and only projects that are completed if they leave will they get paid on, as someone else will have to service the account if they leave.
There are many ways to formulate this commission, but be prepared to pay on the gross, and have your pricing reflect this. This is what they get paid for.
With all that said, your main problem is finding someone who can live with the ups and downs of commissions. The best answer is to find someone who reps several lines to your customer base, not just yours. They might have a line of cabinets, flooring, windows and doors. The addition of several lines keeps the commissions strong enough to support them through the roller coaster of commission pay. Ask your customers who is calling on them and you may find the person with the right mix. The right mix is essential. We call on woodworkers so we are always looking for lines that will go to our current customer base of cabinet manufacturers, store fixture, window, door and display manufacturers. You need someone who is already selling to the kitchen dealers or consumers.
Remember that independents are paying all their own health insurance, gas, travel expenses, office expenses, etc. So while their checks may look like a lot, the take home is greatly reduced.
In the current mess, or at any time, a marketing plan is only a set of management guidelines. After you decide to be more profitable (the easy part of a marketing program), which of the limited options do you suggest? As I see it, you can decide to sell more by offering discounts (price decrease) or by obtaining new accounts. Otherwise you can sell less but charge more (price increase). You might increase features and value or economize. If seeking new accounts, you either hire agents (straight or commission) or advertise. After those, all I see for a "marketing plan" is perhaps to diversify the business. (Which immediately leads you back to a sales plan for the new lines). Have I missed something?
We get about 50 calls per day. Out of 50 calls, 11 turn into jobs, which puts my marketing budget at just a few dollars per day. Right now things are good for this shop.
But to look at marketing, look at your competitors - if there are shops in your city that you do not know about, then their marketing is no good. I know every shop within 100 miles of my city or town because I have to compete with them. If I cannot get in by the back door, then I will make it a point to go in the front door.
Outside sales reps rely on contacts they have built up. Most are contractors that have just about dried up. Dealing with contractors unless they are commercial is a waste of time; they will come to you when whatever shop they are using does something wrong. The best thing to do is go straight to the homeowner. No one knows your product better than you. Sell you and you will be far busier than you ever thought possible. There is a lot of work out there waiting for you.
The marketing plan is easy. Figure out your customer base in your town and go after them. I go by streets with homes of $400,000 plus and I mail out letters, not flyers, addressed and personal. You'd be surprised what they will do. Anyone that comes through our door to look, buy, or get a quote, I get their contact info and send them a thank you letter for coming by and doing business with us.
You send out a 1000 letters a day? 5 days a week, 50 weeks a year - by my math, that is a quarter million letters. How many people does that take, how much does that cost? Stamps alone would be $125,000.00. What percentage of your sales is your advertising budget?
I have three sales outlets. All are company owned and staffed with salaried employees.
Clone the sales person I have? Took a year and a half of my time to get him up and running. Wasn’t easy, but I do think it works better to have diggers and designers working together. And the day of sitting there waiting for the order to come in I think is gone.
As far as your distain for home builders goes, I think there are good ones and bad ones in every trade. The trick for us is to align ourselves with a mix of architects, builders, designers, and homeowners to keep work coming in (don’t put all your eggs in one basket).
You had a year in training a sales rep. That amount of time, to me, is lost sales. There is another way to bring in more sales. Sales people rely on their contacts. Their contacts and sales may be just about dried up. Sales reps are good, but only to follow up on leads from what marketing brings in.
In the company I'm working with we are in the sixth month of the year and sales are at 1.5 million USD. This is not bad for what this country is going through.
But without a careful marketing plan, the 3 sales reps we have would be at 0 sales. The answer to your question is think, and think again. Hire sales reps but have a plan for them to work with. Shops close every day and you are right to not put your eggs into one basket, and the same goes for sales.
A 10% commission is pretty standard. I feel that commissions should be paid out whenever the company receives payments. I would set up the contracts so that the last payment is significant enough to cover any errors in design past a preset threshold. If the error(s) are bad enough to eat up all of the salesperson's last payment, they are not penalized. You know, you win some and you lose some and by the end of the year it evens out. It's also helpful if the salesperson's work is double checked before the sale. It is the overall responsibility of the company to ensure successful projects to keep the referral links coming. Giving perks such as a gas card benefits the employee and at the same time is a deductible expense that isn't paid out as part of payroll.
