Inside/Outside Maneuvers
Paul Forslund, president of Forslund Building Supply, a four-location dealer based in Ironwood, Mich., pays an hourly wage combined with a percentage of gross profit on what the reps sell each month. That profit percentage in turn is influenced by the gross margin collected on those profits. The higher the gross margin, the higher the percentage of gross profit a rep is paid.
“It gives incentive to [our sales reps] to not only sell the sticks, but to sell everything else that goes with it,” says Forslund.
This setup applies to both inside and outside sales reps. Forslund says it has the added benefit of creating a level playing field between the two jobs, because inside sales reps may have a higher gross margin but lower sales while outside salespeople often have more sales but at thinner margins.
Ganahl Lumber, the Anaheim, Calif.-based outfit that is ProSales’ current Dealer of the Year, also pays inside and outside reps based substantially on gross profit.
“Ultimately, it’s about pushing decision-making as far down as we can,” company president Peter Ganahl says. “Our belief is that the people closest to the customer need a big say … but they make better decisions if they have lots of skin in the game. Anyone can and will sell lots of stuff cheap if they are paid for merely generating sales. But when they make their living on the gross profit, they have to think, use their heads.”
Liliequist puts key inside sales reps serving pro customers on pretty much the same commission pay system as outside reps because he feels inside sales reps are “just as important to the process.” Selling building supplies requires a team approach, he says, so most members of that team should be on the same system. He even keeps the base salaries of the inside sales reps similar to those of the outside reps. Regular inside sales reps are on a straight salary.
Half and Half
Tony Steinman, general manager at Thomas Building Center in Sequim, Wash., faces a different situation when he determines pay plans. He doesn’t have inside or outside salespeople; rather, he has “contractor salespeople” who spend time inside and outside of the store. They have to be able to make the cold calls as well as work behind the counter.
Thomas Building Center was one of the dealers that went from salaries to a commission-based pay system after January 2008, about the time owner Rand Thomas started phasing out of day-to-day management and handing the reins over to others. When new management came in, there were about five or six pay systems, so managers began to simplify the systems so employees could easily figure out how much they would make each month.
“Some of the guys who were on a commission-type system with a base pay were being grossly overpaid,” says Steinman. “It was all well and good when we were making [more money], five or six years ago. We had to make some sort of change monetarily in order to get wages in line with what the current market conditions were.”
Currently the company pays its contractor salespeople a weekly salary of $700, and on the 15th of each month they receive 5% of the gross margin of the previous month. Sales compensation at the company’s design center, located next to the lumberyard, is much different: Its salespeople are paid 2% of gross sales and 15% of gross margin, with no base pay.
With the change, Steinman found that about half of the employees realized their wages were closely tied to company sales. Steinman says he had to teach some of the salespeople that instead of marking everything up the same way, they could price the products at different profit margins.
“The half that didn’t [figure that out], we’re looking for their replacements,” says Steinman.
Why Change?
At Atlantic Millwork & Cabinetry, a cabinet and millwork producer in Lewes, Del., most of the sales staff earn a salary with commission based on gross profit. But two salespeople are paid solely on gross profit, one gets salary and commission based on gross profit, one is on salary, and one receives a salary with commission based on sales. The company changed to its current system about two years ago and cited the economy as one of the reasons why. Atlantic Millwork also wanted to have salespeople’s wages reflect the amount of gross profit they brought into the company.
“We have noticed those that are tied to gross profit are a lot more attentive to their selling prices and costs associated with the sale,” says Mark Woodruff, Atlantic’s president. “We did lose one salesperson because of the reduced salary.”
Another important factor that sales reps bring to the table is experience with and knowledge of the products they sell. Salespeople aren’t paid based on their knowledge, but it’s often an extra they pass along to their customers. Baalmann of B&B Lumber acknowledged that this gives him an opportunity to pitch products that remodelers and builders would never have thought to buy before.
These skills at coaching customers go with another key skill: Customer service. Baalmann says it’s all about helping customers find what they need and providing the services needed to satisfy those pros.
It’s “putting the pieces of the puzzle together,” he says–including what reward the reps should get for the service they give.
Keeping Score
Baseball players and sales people are a lot more alike than you might think. Both are out to win (and make money) for their respective teams, and both rack up statistics that owners, managers, and fellow players can use to measure them. How should you size up a salesperson? Consider putting these metrics on the scorecard.
Leads
It’s like on-base percentage. They may not be as vital as sales, but every lead means a new opportunity to make a sale. The more leads you have, the more chances you can make a sale.
Sales
Volume and Deals Closed Think of these as on-base percentage and total bases reached. Some hitters smack a lot of singles, while others hit home runs. Both have their value.
Percentage of Leads Converted
Just like a pitcher, nobody wants to have more losses than wins and eventually it gets to the point where you may have to pull the plug and release the poor performer. What’s your staff’s win percentage?
Margins
One of the most important skills of a salesperson is the ability to negotiate and get as much money for a product as possible. It’s similar to batting average; the higher, the better. Unlike batting average, though, higher margins need to be controlled, lest the sales rep lose the customer.
