If Only We Knew They Were Motivated by Money to Begin With!
Steven Cesare, Ph.D.
A business owner from Kansas called me the other day to talk about the commission plan he had in place for his salespeople. Like most business owners, this gentleman was admirably sincere, though intensely frustrated by his underperforming sales team. Naturally, like many landscape maintenance/construction owners, he has pinned much of his company’s future success on the ability of his sales employees to help grow the company through increased revenue based on selling new contract work.
His current commission plan lacked imagination, capitalism, and results, offering the orthodox flat rate of 2% on all new contract work. Due to lack of achievement, he hoped that raising the commission rate from 2% to 3% would produce better results.
I explained to the business owner that there are several standard commission plans to consider: Flat Rate Plan like the program he has, the “3-2-1 Plan” that offers 3% commission on new contract sales, 2% commission on enhancement sales, and 1% commission on annual contract renewals, and Revenue/Gross Margin Plans that offer commission only on those contracts that satisfy both goal criteria. Instead of addressing sales performance only through the lens of static commission rates, I offered a three-step compensation plan to the owner.
First, given the exempt status of sales employees, I suggested a moderate base pay between $50,000-60,000 be paid to all salespeople. No more than that. Their job is to make more money for themselves by making more money for the company.
Second, rather than offering a flat commission rate, I proposed a three-tiered plan to serve as incremental incentive to his salespeople. For example, a salesperson would receive 2% commission on the first $500,000 of new annual contract sales that meet gross margin goals, then 4% commission on all additional contract sales that meet gross margin goals up to $800,000 annually, followed by 7% commission on all additional contract sales that meet gross margin goals beyond $800,000 annually.
Let’s be honest: Salespeople are uniquely motivated by money more than any other job classification. This three-tiered plan provides them with a stairstep approach to make increasingly more money for themselves, while making more money for the company. What a concept! If only we knew they were motivated by money to begin with!
Third, oh by the way, did you know that salespeople are motivated by money? Given that truism, beyond their base salary and ascending commission rates, I also proposed including a bonus payout for the business owner’s salespeople. For example, they could receive a $2,000 once they attain $600,000 in annual sales, $3,000 more when they reach $900,000, and $5,000 more if they get to $1,100,000 in annual sales.
Did you notice that the bonus payout thresholds are in-between each change in commission tier rate? Another series of planned plateaus to motivate their desire to make more money, for themselves and the company.
As I explained to the Kansas business owner: Calculate the increased revenue dollars to the company and the amount of gross margin dollars generated, as the dividend for investment in the total compensation available to the salesperson.
Do the math…
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