Commission Program for our sales reps

[cpot25]

We're a 10 y/o design/build architectural sign company that currently has 3 sales reps and around $5m in revenue/year. Our top sales rep will do about $2.5m and currently we pay a tiered structure based on a revenue number. She will make approximately $250k this year so the program is about 10% of revenue if they hit their number.

This program was around before I came in (my family business) so i'm not in favor of the commission being based on a revenue number. Main issue with this is that we're paying regardless if our sales people grow their book of business or not. The rep I talked about above could have a $2.5m quote and sell $1.25m and still make $100k. I don't think doing 50% of your number should make you 6 figures.

In 2018 I want to create a new program that encourages growth. I've been in the corporate world so I know how it's done on a larger scale, but for the small business it's different. Any companies out there around the size of us and can share what their commission programs are?

I would like to create a program where they are paid on individual goals and also on how the company does. That way if we don't hit our number as a company then they aren't getting the maximum of their bonus.

I appreciate any insight that you may be able to provide.

 

[Ahmed Samy Nagada]

We have a simple structure as follows:
Get a new client and manage the account: 5% of sales for first year / 4% after (1% goes to production staff)
Get a new client only: 2%
Manage a client only: 2%

 

[TopFliteGraphics]

Personally, I think by tying the individual sales person to the company's sales goals is setting yourself up for failure. The individual has no control over what the other sales reps do and this could work to create a hostile work environment among the sales reps. After all, everybody is unique in their idea of success and while your top seller/earner might only consider it a successful year when they earn 250K, another rep might be happy at 75K. Also, bear in mind, your top sales person has probably built a pretty decent and very loyal customer base. Those customers may very well follow the sales person if the sales person jumps ship to another sign company. Then, all of a sudden, you have a $2.5M company. If you are like most people, you have probably built up a lifestyle and company culture that would really suffer with a nearly 50% reduction in revenue. There are a LOT of sign companies out there and while I don't know exactly what you produce, I am sure your competition would love to get that business from you.

Your example of the $2.5m quote only yielding a $1.25m job misses the point. The client controls what jobs get awarded and you don't know all of the factors that go into their decision making. It could be an over zealous marketing person put together a signage plan that exceeded the company's vision/budget. The client could have initially wanted something more elaborate than they settled on. The client could have split the bid/job to keep from putting all of their eggs in one basket. If the sales person brings in $1.25m, they deserve to get paid. Remember, a small piece of the pie is definitely better than no pie. I like pie!


That being said, it would be perfectly fine to announce a growth plan/goal for 2018 and put an incentive out there company wide if the goal is met. Something like a cruise or ski-trip for everyone not just the sales people. This would help foster a team work environment.

FWIW - I would GLADLY pay someone 250K if they took my company to $2.5m in 2018. Where do I sign up?!?!

 

[spectrum maine]

10% is usually the industry standard. it is not just sell & move on, the jobs needs to be overseen so the jobs go smoothly. The last shop i worked for the sales person made the sale, collected the deposit, got the permit, & collected the balance. got 50% at the start, 50% after the balance was paid. Recievables list was suprisingly small lol. If you mess with the sales reps percentages the whole company will suffer. When it becomes a "HOUSE" account the sales rep doesless work, so possibly a lower % to keep the numbers sharp.

 

[Eric Butler]

Any time you restructure a compensation schedule there will be pushback. Be prepared to lose a rep or two. You mention that you came from a corporate background. It is just this type of thinking that created a toxic culture in corporations. This type of "spreadsheet management" lets managers adjust what they think is a small percentage and "create" profitability. I know of a local company that did this and lost two top performing salespeople. They will sit out their 18 months and then come back and eat their former employer's lunch.

When an organization begins to resent their sales people instead of celebrating their successes, they begin to fail.

 

[Corwin Steeves]

I couldn't agree more with Eric. [HASHTAG]#respecttherainmakers[/HASHTAG]

 

[Terry01]

Very easy to lose staff and have them set up shop next door to you, remember they are the ones
earning you the money. As with any business, you have your highs and lows, punishing a worker
for so call low performance based on your perception of a profitability margin, could come back to
bite you in a big way. Also remember the clients work closely with your employees and your
employees have a greater understanding of what the client wants, including the budget they have
to work within.

 

[equippaint]

Is there any particular reason to suspect the top sales rep is not putting in a good effort to grow sales? How much of that 2.5m is recurring customers? How deep is her role in the work process? Im sure her job is more than just bringing in signed orders and dumping the rest onto another employee. You really need to look at what she does as a whole. Many sales reps are also a project manager so to speak and area able to fill a role that you may not realize.
Whats their involvement in residual accounts? When I sold, I still handled all of the orders (order, prep, delivery, after sales support and collections) just the same as a new account. You also need to consider how much more volume you could really take on too.
OTOH, a sales rep will reach a saturation point also which seems to be your concern. Then you may want to consider cutting their territory sizes.