Salary plus commission, 100% commission, straight salary, draws against commission … Different remodelers compensate sales staff in different ways. As the slowdown persists and 2009 budgets are hammered out, it’s a good time to reconsider your company’s compensation plan.
“Straight salary is fine in a robust market, where all you need is someone to write up change orders,” says Michael Lee, a marketing consultant, former remodeling company owner, and salesman of 30 years. Some remodelers prefer straight commission, finding it highly motivating to ambitious professionals, but Lee says there are drawbacks, particularly for new staff ascending the learning curve.
“It takes time to learn the products, systems, and to develop a pipeline of clients,” he says. “You don’t want them to be desperate when selling large-ticket items like remodeling jobs because customers can smell it the way dogs smell fear.” Lee adds that strict commission can discourage salespeople from spending time on training, completing paperwork, or providing stellar service and followup.
Drawing a Line
Between these extremes are salary-plus-commission plans with an income “floor.” Two of the most common:
Recoverable draw plan: If a salesperson’s earned commission exceeds her monthly draw, you pay her the difference. If her commission is less than the draw, she owes you the difference against her future commissions.
Non-recoverable draw plan: Same system if a salesperson’s commission exceeds his monthly draw. But if his commission is less than his draw, you forgive the difference. Obviously, you’ll want to monitor “negative commission situations” and be prepared to act decisively, Lee says.
So what to do now? Consider many variables, including your business type, Lee says.
“In today’s market, a replacement company might be able to offer a smaller draw and larger commission because there are fewer sales jobs available,” he says. “For full-service or design/build firms, jobs are bigger and take longer to close, so a higher draw versus smaller commission is probably a better choice.”
Lee has written a longer article about sales compensation plans. He’ll send you a copy if you e-mail him directly at email@example.com.