During our most recent Elite BSC Mastermind Webinar, we fielded questions from our 70+ member owners. I wish to tackle one of those questions today. In fact, this is a question I am asked nearly every month. “What sort of compensation plan should I have for my sales rep?” Many janitorial business owners (myself included) have been burned by bad sales reps. You know the drill. Having lofty dreams, you hire a new sales person, only to be disillusioned with lack of business or perhaps worse, bad business. Sadly, you have wasted money on salary and commission with little to show for it. What gives?
While getting the right sales rep is important, having the correct compensation plan is equally critical for a successful sales and marketing program. Let me offer 4 tips for developing a solid comp plan for your next sales rep.
Base Salary - The Goldilocks Principle
When the base salary is too high, you reduce the motivation to get out and achieve goals. In contrast, when the base salary is too low, you cultivate desperation, which is a cancer to the confidence of a salesman. A base salary should be a livable salary, likely within 20% of the median annual income in your area.
Restricted Commission - Pay For What You Want
A common mistake I observe in sales commission plans is paying for sales that don’t contribute to the long-term health of the business. When paying commission on just any ole new sale, regardless of market or size, you subtly encourage the sales rep to chase the easiest business to land. Unfortunately in many instances, the easiest business to land is the worst business for the company. Commission should only be paid for the account types and sizes you prefer. In other words, spell that out clearly in your commission plan.
Generous Commission - Pay Well For Good Sales
Due to negative experiences with sales reps, many owners are reluctant to pay healthy commissions. However, if the accounts sold are ideal for the company, you should be excited to pay top dollar. My recommendation is to pay a multiple of account markup over cost. At my company, we pay between 2x and 2.5x this markup. If our sales rep sells a $10,000/month account that has $3k in markup, he receives $6,000 in commission.
Temporary Commission - Don’t Pay Forever
Finally, commission should be paid out over a short period of time, somewhere between 4 and 7 months. Preferably, the first commission check should be released when the first check from the customer is received, which will help with cash flow. If you pay sales reps an ongoing commission from accounts sold in years past, this will slowly increase their total compensation, deterring them from staying aggressive and selling new accounts. In the words of Dave Ramsey, you want them to go out, kill something, drag it home, then go do it again.