Regardless of your market or budget, it’s good to take a peak outside your four walls every once in a while. The opportunities are amazing and so is the insight that will help your business grow revenues. Finding the best way for your business to pay and incentivize outside sales staff is what will get you results out in the field.
How do you pay an outside sales person?
While strategies and pay structures may vary, I think most business owners agree that an incentive or commission based plan is the best. The most common—and my recommendation—is a base pay, plus commission, plus a staggered bonus.
Base Pay: This is typically an hourly rate to cover time that a salesman is not able to be out selling. Some examples of non-sales activity include: working inside a location to help with manpower, attending meetings or delivering equipment. Base pay will vary by market and dealership structure, but if this position is a dedicated outside sales person, then the lion’s share of their pay should be in commission. After all, the reason you would hire such a person is to increase sales right?
Commission: Commission should always be paid off of gross profit and not gross sales. This is mutually beneficial to the company and the sales person. For example, you can budget for a base wage plus 10% of gross profit. Let’s say, the salesperson sells $500,000 at a blended 20% margin producing $100,000 in gross profit dollars. The salesman would make an additional $10,000 in commission ($100K x 10%).
Staggered bonus: This strategy keeps sales people honest and focused on the same goals as the business owner and management. Set a goal of $1 million in gross revenues at a blended margin of 18% for a year. Be certain to give an incentive for exceeding the gross sales goal. However, it is very important to tie that goal to the profit margin goal to ensure profitability. For example, you can pay 10% of gross margin up to $1 million dollars in gross sales. Once the salesman has reached the million dollar mark, he can take his 10% of gross profit margin commission up to 12% for anything over $1 million, then at $1.2 million he would get say 14% of the gross profit margin only if the agreed upon blended profit margin goal of 18% was achieved.
What to do if you can’t afford a dedicated outside salesman?
If you know there are opportunities outside of your location but your market won’t support hiring a full time outside sales person, then perhaps you could try one of the following suggestions:
Turn to a retiree – Pay a retired sales person straight commission and let them use the company truck two days a week. When setting up a straight commission structure, you will need to pay a higher percent of gross profit, but you would still want the commission based on gross profit and tie it to a gross profit margin goal.
For example, you would agree to pay 35% of gross profit margin on all sales up to a 18% gross profit margin. At 18%, you raise the percentage by 5% up to 40%, and if they hit 20% profit margin, then the percentage goes up to 45%. See the chart to the left as an example.
As the company makes more money, so does the salesman. You can also tie the commission structure to an expense budget and even provide incentive for savings on expenses. This will get your sales folks thinking from a business owner’s perspective.
Start Small if you don’t know potential – An outside sales campaign could be as easy to implement as sending an inside sales person out for a half day each week in the delivery truck. In a situation like this, you may simply pay an incentive on gross profit such as 10% of gross profit margin. Be sure to stress that sales have to be new business. You certainly don’t want to pay more expenses for current customer purchases.
Give it time, encourage, and hold sellers accountable
Rome wasn’t built in a day and neither will your outside sales campaign. A good sales person should be supporting himself within two years. It is lonely outside of the store, so be certain to encourage your outside sales efforts and be creative with incentives. Offer a bonus on wholegoods that are getting ready to bear interest when they are sold at a pre-determined price or higher. For accountability, I would recommend a simple call log that is turned in weekly by your sales team including the “who, what, where and when” information. This will also provide valuable feedback for you as an owner or manager.