[PSUscaper]

What is with compensating a salesperson.

First of all it is not just sales they are doing. They are most likely doing design, scheduling, check-up, money collection, and a slew of other things.

If this is the case, then don't you have to pretty much give them a base salary for doing this work, and shouldn't that base salary be more than say, a laborer? And, if they are doing design, should the get compensated for the design work they are doing in more than just a base paycheck?

Second of all, when it comes to sales, how do you compensate them?

Most people are using a commision based system. Most seem to be using a % of Net Profit, but others are doing a % of Gross sales.

Either way, I just don't understand something. What motivates a salesman to make more money for the company?

Whether you are paying a % of the gross profit or the gross income, nothing that most landscape companies do would seem to make a salesman motivated to sell the job for more than the minimum amount of money that the company expects to make.

For instance. Company XYZ hires a salesman. They tell him he'll get 4% of gross profits. They expect him to sell, say, 1 million in work. They have everything calculated out. They know there numbers well, and if he sells the expected amount of work for a price they determine, they will meet their goals.

That's fine. Understandable, and makes sense. But the big problem is this. What would make a salesman sell a job for more than what the company expects????

Example: A saleman prices a job out. He knows he's going to get it. He prices it out, takes it to the owner, and says, 'here's my price, what do you think?" The owner looks at it, runs the numbers, and says "great!, we'll do well on the job!' The salesman then takes the price, gives it to the client, and yippie, the job is sold.

What if, however, the salesman on the way to the job goes, "you know I bet I could tack 3k on this job and still get it". He takes out his white out, blots out the 10k price, and makes it 13k. When he arrives, sure enough, the client agrees and 'yippie', the job is sold.

Now, heres the thing. on the way home, the salesman gets out his calculator and does the math. 'Lets see, I sold the job for 3k extra, so....that means.......I get 4% of that, which is $120, and the company gets.....wait minute here.....that can't be right.......$2880 bucks!!!!!!! "

Why on earth would a salesman take a chance of losing his 4% commision on 10k for an extra 120 dollars? He wouldn't. What he would like to take though is a piece of $2880!

And this is what bothers me about the way in which most guys are presenting sales compensation plans to potential employees. There's nothing in it for the salesman to gain.

As business owners, we know the truth about giving a estimate. Many times, half is in the numbers, and the other half is in the gut. A lot of 'nice things' have been bought out of having a gut feeling. When you hire a salesman, are you instantly making a decision to 'pass up' all of that extra income?

I'm starting to think there are a LOT of companies out doing just that.

And not just by poor compensation. Maybe, even a bigger probem, is poor decision. Really, because a person is a great designer, they will make a good salesman? Maybe, maybe not, but it sure seems there are a lot of guys out there willing, hek not willing, they ARE, putting their designers out to do sales.

And then, to make it even more interesting, they take their designer/salesman a step farther, and do what....make them a designer/salesman/job coordinator, who, with the base salary of a lawn maintenance laborer, is expected to do all 3 things (if not more) and still go out there and make enough money to turn there 4% commision into some sort of paycheck.

What I'm interested in knowing is what are others doing with their salesman. Does anyone have a full proof system developed that both motivates and drives sales people into making that extra effort?

Maybe the way to approach salesmen is to just look at it as base production. Meaning, we are going to hire this salesman and need him to produce x dollars a year at x % profit, and don't care what else they do, as long as they do that. If we need more sales, or want to make more money, we will just hire another salesman. This, is basically what most seem to be doing.

[agla]

I don't have an answer for you, but I have worked on the other end of this relationship - as the designer, salesman, coordinator, supervisor, estimator, hole digger, ....

My best design/build job was paid hourly and year 'round. It was paid well. I think it worked out pretty well from a business point of view on both ends. I did get overtime over 40 like anyone else.

One of the things that you have to ask yourself honestly, as a business owner, is just how much work you can handle before you are over your ability to get help or manage them right. Very few of you are going to be able to take on an endless supply of jobs if you had a salesman who could produce them in my opinion and from my experience. That means that the salesman more importantly has to get you the best jobs within your ability to produce rather than just more jobs. If this makes sense to you, read on.

Your pricing should be based on your experience of the overhead cost of producing the specific types of work vs. losing TOO MANY jobs due to high price. The key words are "TOO MANY". So this would mean that you have your pricing system that produces a hard number and not one that you would look at and say "I might be able to tack on $4,000". If it makes sense to tack on that four grand, your pricing system needs updating rather than the particular job's price. I got side tracked, but the point is that the salesman should not be tweaking your prices - they should be set.

You should be working in a particular market in terms of affordability and not all over the place. That means that you and your salesperson should know that you will be over priced for certain potential clients or the particular task that they want done. You have to accept that by pricing it out just like any higher end job and knowing that you probably won't get it. But, if you do get it the money is there to cover it. I definitely would not want a salesman nailing this job at a lower price for a commission and don't think you would either.

I'm doing a poor job of it, but the point that I'm trying to make is that you don't need a salesman to maximize how many jobs get sold. You need a salesman who can max out the gross on the sales he has the opportunity to make. That is not by adding directly to the price, but by building interest and enthusiasm into a project that results in increasing the scope of the job, and adding ammenities and plants.

The increase in value that the salesman brings also lifts up your body of work a little each time. That keeps you away from bidding on little simple jobs that every other landscaper can and should be able to do for less money and puts you into doing jobs that they can not effectively compete in getting. Since many lesser landscapers can not get in the door to bid on these jobs and you increase your prices for things like seeding and mulching ... and you are making much more by moving materials the little guys can't - bigger plants, pergolas, masonry, swimming pools,...

Now why would it be better to pay your salesperson hourly?
Because your salesman will not be very interested in aspects of the job that you need him to do, if his pay is more depenent on something else. He'll feel bitter every time you have him doing other tasks. He'll also want to make sales that will benefit his pay with less regard the overall benefit. You also have to know hat it is very rare that a landscape contractor can supply a full work week of sales work on a year 'round basis. There are feast times and famine times throughout the year. Worse yet, you might have to stop a successful salesperson if they sell more work than you produce. That won't go over well, if that effects his pay.

Why is it good to get paid hourly if you are a salesperson. Steady income is always a good thing. All the reasons mentioned above cut both ways as well. Learning to do more things within the company increases your value within the company (and elsewhere later on, if need be). By doing more you become a main player in management of the company. That makes it much easier to improve how you benefit the company through sales and marketing which further increases your value (and pay).

The more the designer/salesperson is involved in other aspects of running the company, the less they stray into doing odd things or spec'd odd plants that you can't find. When you have to find them, or have to build things, you tend to spec' only what you can deliver. It is easy for an isolated designer/salesperson to get more interested in helping the client than the business when they ae left out. The more involved they are, the more they feel like they are part of the business.

It is much better to compete with 10 other landscapers and land 20 jobs with lots of plants, hardscapes, and other amenities than to compete with 200 landscapers to try and land 100 seed jobs and a few shrubs here and there. A good multitasking designer/sales/manager type can help make that happen as long as you can produce the product that he is trying to sell.

A lot of designers come from outside of the landscape contracting world and don't fully get it. Some are artsy people looking for an outlet. Some are gardeners looking to "go to work loving what they do", and some are out of school and don't know much about making a living. They are outsiders and will behave like outsiders unless and until they become insiders.

That's just my perspective on it.

[agla]

Another thing that you and the salesperson has to consider is this.

Your company produces its leads not the salesperson. Without you that salesperson has no one to sell to and nothing to sell. It could be easy for someone to start to believe that they are more responsible for your sales than your business is. When you pay a percentage, it seems like you are confirming that.

If your work is nothing special, I can't sell it for you. If your portfolio has nothing in it, it is hard to sell your potential. But, if everyone knows your work and there is a beautiful portfolio in front of the right customer, you don't necessarilly need an extremely polished sales person.

Your lead is something of value that you are entrusting into the hand of another. If they do not handle it correctly, it is lost forever. They are not going to make all the same sales you might, but they can't be wasting your leads either.

If you have a great reputation and a great portfolio, there should be designer/salespeople eager to work for you. It is a lot more fun to design projects with lots of fun things in them than to be drawing foundation plantings for people at garden centers.

Designers are a dime a dozen. Someone who can do the whole job is worth a lot more than that.

[Lawn Lad]

While I can't comment on salesman's compensation structure specifically, I do believe there is a way to provide an incentive to sales people and the staff as a hole that is fair.

I believe it was Kevin Kehoe at a SIMA symposium who laid this concept out. His version may be different, as what I recount here is the solution I'm ironing out for our company. It's not tested with us yet, still in the planning/development stages.

The goal of any bonus or incentive system should be to reward results. Meeting goals alone is simply meeting an expectation and I don't believe should be incentivized. However, exceeding expectations, exceeding the goal should be rewarded. Rewarding results that encourages team contribution and participation should also be achieved, while allowing the individual performer to also be rewarded for his/her excellent performance in achievements above the stated goal.

The basic method of giving a bonus comes from exceeding gross margin/contribution or even percent contribution to admin and profit, considering direct costs, indirect costs and equipment. While gross margin is the contribution to overhead after paying direct costs only, I believe that your front line employees should also be held accountable to indirect costs they can control, such as indirect labor (e.g. overtime, equipment maintenance, other non-billable hours), equipment maintenance, repairs and fuel, small tools and supplies, etc. These are all things they can control in the field and can influence in their daily activity. The salesman may sell the job, and if he's involved in any of the pre production, production or post production part of it, he also contributes beyond direct expenses. His salary may be purely administrative, but his efforts will directly effect what's left for admin and profit.

Administrative expenses should be relatively fixed. Direct costs are directly proportionate to the job while indirect overhead is slightly variable, but largely fixed if controlled. The costs can be predicted, and if managed, will stay in check.

No one person, manager/owner, etc. can run the company successfully on their own. It takes a team effort of working together to be efficient. No one becomes a high profit company from doing just one or two things right. Rather, they have to perform well consistently day in and day out and meet their goals and make adjustments accordingly to be successful year in and year out.

Here's a suggestion on how to provide bonuses:

When the gross margin or measure used for the goal is surpassed, an incremental percentage is put into a bonus kitty to be distributed to all eligible employees. For instance,

Increment 1: .01 to 15.0% beyond Goal: 20% of excess to bonus
Increment 2: 15.1 to 40.0% beyond Goal: 35% of excess to bonus
Increment 3: 40.1% beyond Goal: 50% of excess to bonus

Whether you make it a straight calculation or marginal increase is your own choosing. So if you exceed the goal by 10%, which is $100,000, there is now $20,000 to provide bonuses. The company keeps $80,000 to reinvest in equipment, facilities, working capital, etc. It does not hurt the company to provide a larger share the more the goal is exceeded since the budget has been met, and employees get more as the company does better.

Distributing is based on points. Employees earn points in a myriad of ways that can be simple, creative, whatever. The sum total of all the points earned by employees is divided into the total bonus amount providing a dollar value per point. The value of each individuals bonus is calculated and distributed based on the points they have earned/accumulated and the calculated value of each point.

This method provides the entry level tech to have an opportunity to make a bonus, modest it may be, as well as the salesman, foreman, supervisor and anyone else you deem eligible. The ability for the person to earn points towards the bonus could be based on: Seniority, attendance, job position/description, training completed or certifications earned, driver's license in good standing, hours worked, peer to peer evaluations, etc.

Make it possible for enough points to be rewarded for enough different things that are relatively easy to calculate/track, but that promote team work, personal accomplishment, etc. Someone is not going to be solely rewarded on the length of time in the company, or how popular they are or the position/title. A peer review provides opportunity for someone to earn points by being valued by their peers, this might be more heavily weighted in the calculations, a true team player who helps others earn more money will be valued by their peers. It does not benefit anyone to simply give out high marks to each other since the total points will be divided into the bonus, thereby just diluting the value of each point. Strong performers should be individually rewarded while weak ones will realize areas they need to focus on for improvement. (These reviews could also be used in management training and evaluation so there is a conversation about what types of things the person can work on to improve and earn more points).

The company does not pay out bonuses if the expectations are not met. Employees don't get a reward for coming in second.

While I see there potentially being some problems with this bonus system, I have yet to hear of a more fair system that is not easy to manipulate for short term benefit and that promotes the long term health of the company.

This type of system has the employees thinking not only about sales and the top line, but also about reducing waste and cutting expenses, since there are two ways to achieve the goals - produce more work then expected, and/or produce it at a lower cost then expected.

I think the key to any bonus structure, and in particular this one, requires continual feedback and updating so the participants in the game know where they stand. Frequent discussions about goals, progress, changes in the game plan, asking for ideas on how to improve and cut waste are all built into this type of model. Getting foreman to do add on sales or set up the sale for the salesman is beneficial - it gets the company closer to exceeding the goal.

I could see a variation where field employees are eligible for bonuses on gross margin while managers, and other people who are more responsible for the decisions about indirect overhead could be compensated more on controlling costs of production, but I see separating this out as making it more complicated and then an us vs them attitude creeping in.

While this system doesn't apply to just salesman, perhaps people can share their thoughts/ideas on this form of bonus and shine a light on any pitfalls they may see.

[RHayden]

Agla, when does the large print paperback version of that post come out?

The part of Agla's post that struck me as hitting the closest to home is that most of us would not be able to suport the influx of work that a true salesperson should be able to bring in. I have good people and we can go large pretty quick when need be but...... it reminds me why we have chosen to stay small and selective.

That being said- my brother acts as a designer/salesperson/project manager in addition to his other duties as I also do. After he has completed his design it goes to the estimating dept (he and I); based on his input and our bidding process we are confident in the number which is arrived at. He is not authorized to go below that number unless the parameters change for some reason. He does not have to worry about getting more from the project because he has the number to work with from the beginning. If he thought he could get 3k more out of the project for some reason then that has been addressed prior to preparing the bid.

My point is, if we were big enough to justify a true full- time salesman, I would also want an estimator to keep him/her in check. I would not want them adjusting prices at the table for the sake of meeting quotas or padding commissions.

I would want them on a stipend draw, with a pre-defined list of project parameters, dollar quotas, and commission; all based on the reasons Agla cited above.

[agla]

One more thing from the designer/sales person's perspective.

When I took that job, it never occured to me what would acyually happen if I was very successful at it. My assumption was that the more I sold the better for everybody. Well, I started in March and sold several design jobs early. Then I landed 100% of those design jobs as installs for the first three months that I was there (a ssurprise to my employer). Then the crew was booked for the rest of the year with some wiggle room for a very good job should it come along. These jobs ran from about $50k upward.

What happened next was that he had to yank me out of design/sales and use me in the field. I had a background that came out of working in the field, so it was not too unexpected or difficult. The problem was that I not only had a background of working in the field, but also a BACK that worked in the field with a lot of hard miles on it. After tearing a disc my second year, I could not see how I could remain doing that full time and had too many alternatives, so I moved on.

The point is that you have to understand that you have to think not only what is good for the company, but what is going to keep your designer/salesperson wanting to work for you. There is a reason why they set themselves up to do specialized work within the industry. More than likely, it is because they don't want to do some of the other parts. Think about it, if they can do design/sales/estimates what else do they need to do to be strong competition? It is working in the field, managing the help, and dealing with the help. If you are going to have them do that, they may as well quit and become your competition.

You are going to have a hard time finding the right person with all the skills to do this type of work at a high level. If you find him, make sure you know what it is going to take to keep him around.

You really do have to be big enough to sustain such a person. You are no longer dealing with laborers who you can pick up, discard, layoff, and replace as needed. More likely you are dealing with an older person who has a family and a career that needs to be stable and secure. That is a big responsibility for the company that should not be taken lightly.

[desynerguy]

From a designer....
I used to work for a fairly large company in Ontario as a designer. I was initially signed up to that kind of work. This quickly became a designer sales position. Then materialised into a design/sales/project manager position. I was paid a salary plus I recieved 80% of design sales and then a bonus of 4 % on project sales. Here was the catch...profit had to exceed a certain amount example...on a 10K job the idea was to have a profit margin of 35-40%. I had no problem with the pay and my hours were long but I could design at my home office so there were some great benefits. I did not have to punch in and account for every hour of the day. But...I did my job.

I was also paid for milage and had a benefit package second to none. First year I exceeded their "target" and made the company a good amount of money. The problem I was faced with was the "sorry but we cant do the work in the time you are selling" scenario. I was doing sales with the bosses son and came within reach of exceeding his sales. That was when the trouble started. I could go into details but I wont except that competing with the bosses son for the top sales position should be a benefit in any company....but not this one. Politics got in the way which was really too bad.

All I want to say is, if you treat your employees with respect and some dignity then they will move mountains for you and the money will follow. As a sales person/design, I loved my job. As a sales/ designer/ project manager...it was very hard but I managed.