Consider these proven compensation concepts
By Daniel Abramson, HRSource
I’m often asked about the best ways to compensate salespeople. Here are some thoughts, recommendations and the rationale behind them.
There are three components of a good comp program for appliance and furniture dealers:
- Base salary plus commission
- Spiffs from the manufacturer
- Selling warranties
Salary + Commission
We all know that Lowe’s and Home Depot pay employees a straight $15-$18 an hour, which translates to $37,440 a year at the high end. Most BrandSource members pay new sales staffers $15 an hour for 90 days and then transition them to a 100% commission structure. But I’m also hearing some discussion about paying a flat $20-$25 per hour salary with no commission for people who can’t take the “solvency period” of commission sales.
Note that $25 an hour equates to $52,000 a year. While this pay structure is a competitive strategy to recruit people based on the high “base salary” and creates a bigger net of qualified people who don’t like straight commission, you’ll need to monitor their sales activity and establish a minimum monthly sales level as a break even, so salespeople don’t go “upside down.”
I happen to like this high base-pay model. Do the math: It’s easy to sell the concept in this funky candidate-short marketplace. In many cases, the flat $25 per hour model is very much in your favor. But as I said, you must monitor activity and performance to assure that the salesperson stays net positive.
If you decide to go with the $25 per hour approach, here’s how I would advertise the position:
APPLIANCE SALES: $25/HR
FURNITURE SALES: $25/HR
With the traditional commission model, a salesperson would go to 100% commission after three months, or earlier if they start billing quickly. But it’s important to make it clear that there’s no turning back once they cross that bridge to full commission; once they do, it becomes a permanent move.
Regarding commission payout, most dealers are paying 15% of profit to their salespeople, with profit seemingly ranging roughly between 28% and 35%. Need to review your profit levels?
Let’s say that the salesperson bills $100,000 in a month. The commission would be $100,000 x 35% profit = $35,000 x 15% = $5,250 for that month
These sales incentives are paid directly by the manufacturer via a debit card arrangement. It’s quite possible that a salesperson billing $100,000 annually can earn $10,000 to $12,000 in vendor rewards for pushing their products. At the end of the day, manufacturers want their products and brands to be top of mind with shoppers and are willing to pay salespeople to push their specific agendas.
We all know that extended warranties are huge margin enhancers, usually generating 50 points of margin or more. Don’t leave this money on the table! Many BrandSource members believe that warranty sales commissions should be set at a base threshold of 5%. Plus, many dealers credit back unused warranties to customers for use toward future purchases, which creates an “umbilical cord” effect.
Here are two more warranty payout options to consider: Offer a straight 10% commission on all warranty sales, or 10% on the first $2,000 and 15% on everything above that. In these scenarios, many members feel their salespeople need to be at a baseline threshold of at least 3% to qualify, as this keeps salespeople thinking about the importance of attaching warranties.
Want to discuss your program privately or need some guidance on custom compensation models? Call me for a second opinion or bounce off.
Daniel Abramson is managing lead of HRSource, a comprehensive collection of customized employment tools and turnkey solutions exclusive to BrandSource members. For more information, contact Daniel at (540) 535-8484 or email@example.com.