The danger of a sales commission based solely on volume, says Dave Bryan, owner of Blackdog Builders in Salem, N.H., is that the salesman has no incentive to sell a profitable job. "That's a very dangerous system," Bryan says. "I, as the owner of the company, am at a huge risk. [The salespeople] get paid regardless." Instead, Bryan says, "I want everybody focused on gross profit."
At Blackdog, the seven-deep sales staff has a greater hand in profitability -- they design and estimate their own jobs -- and have a lot more invested in it. If a project hits the company's 42% gross profit goal, the salesman gets 10% of the sale price. Anything less than 42% results in a lowered commission, reduced along a sliding scale until, at a profit of 32% or less, the salesperson gets nothing. "I want the people who are estimating to have some skin in the game," Bryan says.
Production also takes an ownership stake in the company's jobs. Before a salesperson can sign a contract, the project manager must review and "buy" the budget with an internal contract. But once ground breaks, a project's salesman steps away, playing as minimal a role as possible in the project's actual construction. That means production errors that are entirely out of a salesman's control can eat away at his commission.
The payment system partially safeguards the sales staff -- half of their commission is paid when the estimate is completed, and the other half when the project is finished.
"If a job really tanks," Bryan says, "I'll step in and authorize finance to pay the first half of the commission."
Besides, Bryan says, sales and estimating errors can prove costly, too.
"Are there occasions when there's a significant error in the field that costs the job money? Yes, but there are also incidents where the salesperson misses something huge in the estimate, and that can cost the job, too," Bryan says. "If the salesperson signs a contract with the customer from hell, they've let someone into the company who's going to suck us dry. It's a multi-edged issue."
For that reason, the success of Bryan's system ultimately rests on a pervasive team-oriented culture and a lot of trust and support among the sales and production staffs.
"Our salespeople need to look at this as a team effort," Bryan says. "Sales couldn't do its job without production and production couldn't do its job without sales."