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David Geller

David Geller: Just Rewards

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After a win on the sales battlefield, it’s time to divvy up the spoils. David Geller offers five commission options.

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[h3]Just Rewards[/h3]

[drpocap cap=L]ast month we spoke of how to divide up the goals of the sales staff so that everyone does their “fair share”. That done, now it’s time to divide the “spoils of war”. Every soldier likes to be rewarded for a battle well fought.

Depending upon the volume of your store you should expect salespeople to sell between 8 to 13 times their own salary. If they do, reward them. And if they exceed those sales numbers by 20%, reward them even more.

Here are some ideas I suggest in my seminars for rewarding sales staff:

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[componentheading]1. STRAIGHT COMMISSION AGAINST A DRAW[/componentheading]

[h4][b]Pros[/b][/h4]
• Rewards sales staff for increasing sales.
• Lowers the company’s cost and evens it out over the whole staff.
• The draw helps when times are slow, which must be paid back when times are better.
• Giving raises are no longer an issue.
• Their salaries as a percentage of sales is fixed for the most part.

[h4][b]Cons[/b][/h4]
• Can bring out aggressive tendencies in the staff, especially without a system in place.
• You have to track numbers so you can pay the percentages.
• Discounting should be addressed and pay a smaller percentage if they do. This has to be tracked.
• Not a good system if the owner is the major sales person in the store. The staff might be costing over way over 10% of sales because they handle mostly small sales and repairs while the owner handles larger sales. You can’t pay 100% commission to have “helpers” for the store owner.

[h4][b]System[/b][/h4]
• Pay a draw against commission. Shouldn’t be over 60% of what you’d normally pay a salesperson.
• Draw is figured as if it was regular pay meaning overtime is paid.
• Each pay period you pay draw or commission, whichever is higher.
• Usually the commission amount is 10% of sales at a range of normal selling price. You could pay 10% of the sale as long as discounting wasn’t over 15%. From 16-25% discounting, commission would be 6% or 7% of the sale.
• Stores doing a large volume and having high caliber sales staff would want to pay 7% of sales. Stores doing multi millions in sales would be an example. Not unheard of to have a sales person making $75,000 to $100,000 per year at 7% commission.
• “Average” weekly pay is the amount you use for holiday, vacation and sick pay.
• Returns go against your pay if returned within the company’s refund policy timeline.
• Split the commission if two people help the same customer on the same day.
• For low margin sales, like diamonds, reduce commissions to 50% of normal. Ex: A normal 10% commission would pay 5% on diamond sales.

[componentheading]2. HOURLY OR SALARY PLUS COMMISSION[/componentheading]

[h4][b]Pros[/b][/h4]
• Simple to comprehend
• Easy to figure
• Assures consistent paychecks.
• Reduces stress and aggressiveness.
• Don’t have to figure draw and if we owe you or you owe us.

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[h4][b]Cons[/b][/h4]
• Not as motivational to the staff as commission checks under this system are not usually large enough to make a difference in one’s lifestyle.
• Raises are still an issue.
• Giving raises along with paying commissions can increase your total cost of a sales person.
• Splitting commissions almost negates the effect of a commission.

[h4][b]System[/b][/h4]
• Pay a percentage of total sales plus their regular salary.
• Split commission as mentioned in #1 above.
• Refunds as with above.
• If commission amount is 2-3% or so, no need to reduce commission percentage for low-margin sales.

[componentheading]3. PERCENT OF GROSS PROFIT[/componentheading]

[h4][b]Pros[/b][/h4]
• Employees become your “partner” so to speak in profits.
• Tends to reduce the tendency to discount.
• Sales costs are fixed.
• No need to figure different margins, one number can do well.

[h4][b]Cons[/b][/h4]
• Employees will have to know your cost of goods. Some stores don’t like sales staff to know their costs.
• Difficult to figure cost on repairs and custom. Solution is to figure keystone, even though it may not be.  
• You might still have to pay a draw against percent of gross profit.
• If the owner makes a large portion of total sales, it will again prove difficult to have the employees “buy into it” as they don’t get a chance to sell the big pieces.

[h4][b]System[/b][/h4]
• Pay 15-20% of the gross profit of the sale.
• If the item cost you $125 and it sells for $275, your gross profit is $150. If you paid 15% of that, the “commission” would be $22.50. (Happens to be 8.1% of the selling price).
• The percent of gross profit you pay will be higher or lower depending on what your store’s overall gross profit percentage tends to be.

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[componentheading]4. SALARY PLUS BONUS FOR LEVELS ACHIEVED[/componentheading]

[h4][b]Pros[/b][/h4]
• Gives a higher base pay, a safety net for the staff.
• Simple to administer.
• Can vary the base pay for each level of expertise and still make your own system for costs to be about the same for each person who sells.

[h4][b]Cons[/b][/h4]
• At low-selling levels your costs as a percentage of sales will be a little higher.
• Works well if the owner doesn’t sell the most. If the owner sells a lot then you’ll have to give a higher base, which increases your cost of sales staff.

[h4][b]System[/b][/h4]
• Pay a set dollar amount of salary or hourly wage per month.
• If you pay salary, you can’t adjust for overtime – so I suggest you turn the dollars per month into hours. Example: if you would pay $2,400 for the month in salary, equate that to about $14 per hour.
• Give bonuses for each increment achieved during the month. As the sales person reaches increments of $2,400, give them a $100 bonus. When they reach “plateau” numbers, increase the bonus to $200; then $300, capped at $500.

[componentheading]5. TEAM SELLING GOALS[/componentheading]

[h4][b]Pros[/b][/h4]
• Much less pressure for the staff
• Good plan when the owner is a large portion of store sales.
• If goals aren’t met, no bonus money is paid.
• Rewards everyone working as a team, including the owner.

[h4][b]Cons[/b][/h4]
• Decreases an individual’s incentive to excel.
• Some people might slack off if others take up the slack.

[h4][b]System[/b][/h4]
• Have a two-tiered system. One if the store reaches its goal and another if the staff themselves reaches their own group goal.
• Find out what percentage the owner sells. If the owner makes 60% of total store sales, then that leaves 40% of the sales to be sold by the total sales staff.
• Set your goal for the month based upon how much more you improve on last year’s figures.
• On paper, divide up the percentage the owner is expected to sell – let’s say 60% – which leaves 40% as the sales staff’s target.
• If the sales staff reaches their own goal for the month, give them 4% of their total. (For example, if the store goal was $75,000, and the staff’s goal is to sell 40% of that, their goal is $30,000. If the sales staff reaches $30,000, divide up 4% among them based upon what percent of the total employee hours they work. (Remember, this bonus should be given even if the store doesn’t reach its overall goal. That’s because the staff did accomplish their job – it was the store owner who missed his target.
• If the store reaches its overall goal (in the example, $75,000), sales team members should now get 6% of their total pot.  
• Quick recap: if salespeople hit their target, but the store doesn’t, they get 4% of $30,000 – or $1,200. If the store does achieve its overall goal, the salespeople will get 6% of $30,000, or $1,800 to split up between them.  

It’s important to remember that the higher the percentage of an employee’s salary that comes from commission, the better the chance that commission will motivate staff members. It just has to be fair. (The one situation I’ve seen where staff are demotivated by a commission system is when salespeople are put on low-salary, high-commission programs, but only get the chance to make a small portion of total sales.)

If you do select one of these commission systems, you’ll probably find what I found. That some of your lower-paid sales staff really don’t share your goals and aspirations and are just “showing up” for work sometimes. You’ll also be amazed to find that some individuals, receiving “okay” wages but who are “slackers” in your mind, will suddenly turn into dynamos if given the chance and the opportunity to earn big money.

Set rules in place so the staff doesn’t become too aggressive. Then, role-play and practice how to sell in such a way that customers have no idea that the staff is on any kind of commission/bonus system. Believe me, it works.

David Geller is an author and consultant to jewelry-store owners on store management and profitability. E-mail him at [email protected].

[span class=note]This story is from the January 2006 edition of INSTORE[/span]

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