I've long been an advocate for paying salespeople on straight commission. Not everyone agrees, not even all the experts, but in my experience straight commission is the best way to go.
One person who strongly disagrees with me commented on our website recently and I'd like to address his points.
"Commission only sales is a joke, for a number of reasons.
1) That mentality of 'if you don't sell, you don't eat' makes liars and cheats out of otherwise honest people. Desperation makes people do awful things."
There are liars and cheaters in all fields, and it has nothing to do with how they are paid. It has to do with their character. The best sales people I know, and I know a lot of them, are honest, hard working people.
"2) In this economic environment, people need more security than that, especially if they have a family."
In any economic environment, if you want security you have to get out and work. Nobody owes you or anyone else anything. You work for a company for eight hours; the company pays you for those eight hours, and you're even. If you don't work, you shouldn't get paid. On any job, security should come from producing, not from the method of compensation.
"3) Commission salespeople are forced to work long hours, virtually for free, keeping them from their family for as many as 80 hours a week. This is the 21st century. Nobody works like that anymore. Their time has to be worth something.
No salesperson worth their salt, with any self respect, should need an incentive to do their job, if they are paid a decent wage."
Someone needs to send this poor soul a copy of the Tom Hopkins book, How To Master The Art of Selling. Good salespeople, the ones who know their trade, typically make a good living while working 40 to 50 hours a week. If they choose to work more it's because they want to make more. Nobody forces them to do that. They are providing additional service and/or taking more leads.
Straight commissioned salespeople are some of the highest paid people in construction. Like Zig Ziglar said, sales is the highest paying hard work and the lowest paying easy work there is. If they do their job well, they'll make all the money they need and have the time to take care of their families.
As far as not needing an incentive if they're paid a decent wage, define decent wage. A decent wage for one person isn't enough to pay the taxes for another. Good sales people set their own wage and get after it.
The incentive a good salesperson has is knowing that they'll be paid if they do their job well. They guarantee their own income by doing good work for both their employer and their clients. They do it honestly and fairly. They work hard and are paid accordingly.
"4) commission only salespeople know how to talk, but have no idea how to listen. Service is not part of the equation. They want to get rid of the customer asap and move on."
You can't survive in construction sales if your goal is to get rid of the customer asap and move on. Construction is a relationship business.
The salesperson is the first relationship between a client and the company. If the client is unhappy with the way they’ve been treated by the salesperson, they’ll have plenty of opportunities throughout the relationship to make sure the owner finds out. The owner will either correct the salesperson or transfer them to the competition.
That's why commissioned salespeople know how to ask questions and then provide the information that the buyer is requesting. They understand the ratio of two ears and one mouth. If they don’t listen, they won't be able to provide good service and their sales will show it. If they don't sell what the client wants, production will let them know about it.
Commissioned salespeople will also be looking for future referrals from their clients. The only clients the salesperson wants to get rid of are those who are looking for the cheapest price, or who show the potential of being a problem down the road.
"5) It is cut throat, and causes a lot of tension among co workers."
Straight commission sales should be strictly between the salesperson and the company. What I can and will do for my company and my clients should have nothing to do with any other salesperson in the company I might work for.
I've worked for companies where the sales manager was busy trying to pit one salesperson against another. They do this in the false belief that if the salespeople compete, they'll sell more. That seldom if ever works, and a smart owner won't go down that path. Salespeople need to set their own goals and compete against those goals, not against any other salesperson.
"6) Commission salespeople do not know how to treat people. They see customers as 'marks' (like in a carnival side show) or simply as credit cards with legs.
I do not hire sales people in my stores based on commission only. They get a good wage and performance bonuses four times a year. I would stack the sales ability of my people up against any fast talking commission sales person any day. Believe my business plan has paid off, for me, my employees and, most important my customers."
I wouldn't work for any company with this pay schedule. They are in effect trying to control how much money their salespeople can make. I'd also like to point out that when they pay a performance bonus, they are paying a commission. I hope the performance bonus is based on each individual's performance, not on the collective performance of all salespeople.
The truth is that the writer isn't dealing with commission issues; he is dealing with character issues. If an owner or sales manager sets a good example and insists their salespeople follow that example, they won’t have a problem with unethical salespeople. The company, the sales staff, and the clients will all win.
After last week's newsletter, "You Get What You Pay For", we received a note from a long-time reader that we'd like to share. Myles Corcoran is the owner of Myles F. Corcoran Construction Consulting, Inc., (www.mfcbuild.com) and has some interesting insights on the construction industry and the topic of construction defects.
"I have been helping people who are arguing about buildings since 4/1/90. Before that I did insurance repair and remodeling for 11 years. My consulting business has a variety of services outside of helping in disputes - we do Contract Administration, Construction Management, Quality Assurance, and (my favorite) performance design - mostly complex waterproofing. About half of that is diagnosing and designing fixes for leaks and the rest designing for new construction (my top pick for work I like doing.)
SO: I know more about arguing about buildings than your average builder (I think we have over 800 disputes we have worked on). I also act as Arbitrator for the CSLB. I have 'heard it all' so to speak. The point of this article goes right to the meat of one of the most common problems I see: Incompetent bidders (I did not say incompetent builders) who get into situations where there is not enough money in their contract to do the work properly. They might not notice that the client is super picky (or the clients may not show this when they are courting the project). In any case - under bidding is a serious problem in our industry. I should say, as I have told many owners: 'I know how to obtain construction costs down to the penny: Build it and then add up the receipts.'"
I agree, and the answer to incompetent bidding is learning how to estimate. Accurate estimating is a skill that can be learned, and like any other skill, it gets better with practice. But even with the most skilled estimator needs good plans to work with.
"My experience working with the 'big boys and girls' builder community (hospitals, schools, large buildings) is that they will NOT build things that the owner has not provided explicit plans/designs for. I know that out here in the residential construction world it is very common for there to be pathetic (cheap as the owner can get) designs whose only purpose is to obtain permits and show rough sizing which are then given to builders who are expected (even by themselves) to design all the details. I cannot tell you all the failed but obviously thoughtful custom detailing I have seen. It is a shame."
On the subject of workmanship:
"In my current position I sometimes interview prospective employee consultants. I always point at a poor base board join in my 10'X20' conference room and ask: 'I paid a guy $100 to install and paint the 7" baseboard in this room. Is that a construction defect?' Before they answer (I am not trying to trick them) I say 'I'm sorry - I meant to say 'I paid a guy $4,000 to install and paint the baseboard in this room. Is that a construction defect?''
I realize that I could go on with many examples - so I will stop and just say, again, thank you Michael for the great work you do helping our builder community do it right and get paid properly. I am very proud of our building community - I see a lot that does not measure up but know that the vast majority of what is built is well done."
Myles, thank you for sharing your thoughts.