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David Geller

Here Are Pros and Cons for 5 Popular Jewelry Store Commission Systems

It’s time for maximum motivation. David Geller outlines different commission programs you can use in your store.

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MOST JEWELERS PAY a straight salary or hourly wage and a pittance of a commission. The reason given is they don’t want the sales staff to be “aggressive.” I don’t know what your definition of a sales person is but I’ll give you mine: “Someone who turns shoppers into buyers”. That means not stopping when the customer says “Thanks, I’ll think about it and probably will be back”.

For my first 18 years in business, I paid hourly wages plus 1 percent commission on repairs and 2 percent on product sales. My staff cost me 12 percent to 18 percent of every sale. (The typical percentage for most jewelry stores should be around 10 percent of sales.) It took my company 18 years to get to $1.1 million in sales. The next year, I changed the sales staff to a straight commission of 10 percent and our sales increased by 45 percent to $1,450,000. Under the old system, my sales staff made $17,000 to $24,000. With the new system, their pay ranged from $42,000 to $61,000 per year … and one of those folks only worked four days a week.

Not every company can do straight commission as we did. But I do believe that a lucrative commission system is the best way to recognize strong sales staff. All you have to do is set the proper rules in place to be sure sales people aren’t obnoxious when it comes to being “aggressive.” We had an eight-page list of rules for selling, turnovers, whose sale it was and it worked out just fine. When your salespeople start making better money, everybody starts rubbing each other’s backs. It does work.

Here are some ideas for commissions for sales staff, with pros and cons listed as well as advice for implementation:

Straight Commission Against a Draw

Pros

1.) Rewards sales staff for increasing sales;
2.) Lowers the company’s cost and evens it out over the whole staff;
3.) The draw helps when times are slow, which must be paid back when times are better;
4.) Giving raises is no longer an issue; 5.) Staff salaries as a percentage of sales is fixed.

Cons

1.) Can bring out aggressive tendencies in the staff, especially without a system in place;
2.) You have to track numbers so you can pay the percentages;
3.) Discounting should be addressed, with a smaller percentage paid if your staff does this. This has to be tracked;
4.) Not a good system if the owner is the major sales person in the store. The staff might be costing way over 10 percent of sales because they handle mostly small sales and repairs while the owner handles larger sales. You can’t pay full commission to have “helpers” for the store owner.

System

1.) Pay a draw against commission. Shouldn’t be over 60 percent of what you’d normally pay a sales person;
2.) Draw is figured as if it was regular pay, meaning overtime is paid;
3.) Each pay period you pay draw or commission, whichever is higher;
4.) Usually the commission amount is 10 percent of sales at a range of normal selling price. You could pay 10 percent of the sale as long as discounting isn’t over 15 percent. For 16 to 25 percent discounting, commission would be 6 or 7 percent of the sale;
5.) Stores doing a large volume and having high-caliber sales staff would want to pay 7 percent of sales. It’s not unheard of to have a sales person making $75,000 to $100,000 per year at 7 percent commission;
6.) “Average” weekly pay is the amount you use for holiday, vacation and sick pay;
7.) Returns go against your pay if returned within the company’s refund policy timeline;
8.) Split the commission if two people help the same customer on the same day;
9.) For low-margin products, like diamonds, reduce commissions by 50 percent.

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Hourly Rate or Salary Plus Commission

Pros

1.) Easy to understand and figure;
2.) Assures consistent paychecks;
3.) Reduces stress and aggressiveness;
4.) Don’t have to tabulate draw.

Cons

1.) 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;
2.) Raises are still an issue;
3.) Giving raises along with paying commissions can increase your total cost of a salesperson;
4.) Splitting commissions almost negates the effect of a commission.

System

1.) Pay a percentage of total sales plus their regular salary;
2.) Split commission as mentioned in #1 above;
3.) Refunds as with above;
4.) If commission amount is 2 or 3 percent, there’s no need to reduce commission percentage for low-margin sales.

Percentage of Gross Profit

Pros

1.) Employees become your “partners”, so to speak, in profits;
2.) Reduces the tendency to discount;
3.) Sales costs are fixed;
4.) No need to figure different margins, one commission rate will suffice.

Cons

1.) Employees will have to know your cost of goods. Some stores don’t like sales staff to know their costs;
2.) Difficult to figure cost on repairs and custom design. Solution is to figure keystone, even though it may not be;
3.) You might still have to pay a draw against percentage of gross profit;
4.) If the owner gets a large portion of total sales, it will again be difficult to have the employees “buy into” the program as they don’t get a chance to sell the big pieces.

System

1.) Pay 15 to 20 percent of the gross profit of the sale;
2.) If the item cost you $125 and it sells for $275, your gross profit is $150. If you paid 15 percent of that, the “commission” would be $22.50. (Happens to be 8.1 percent of the selling price);
3.) Typical number used is 17 percent;
4.) The percentage of gross profit you pay will be higher or lower depending upon in “general” what your store’s overall gross profit percentage tends to be.

Salary Plus Bonus for Levels Achieved

Pros

1.) Provides a higher base pay, which means a safety net for the staff;
2.) Simple to administer;
3.) 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.

Cons

1.) At low selling levels, your costs as a percentage of sales will be a little higher;
2.) Works well if the owner doesn’t sell the most. If the owner sells more, then you’ll have to give a higher base to employees, which increases your cost of sales staff.

System

1.) Pay a set dollar amount of salary or hourly wage per month;
2.) If you pay salary, you can’t adjust for overtime, so it’s advisable to turn the dollars per month into hours. Example: if you would pay $2,400 a month in salary, equate that to about $14 per hour; 3.) 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.  

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Team Selling Goals

Pros

1.) Less pressure for the staff;
2.) Good plan when owner does a large portion of store sales;
3.) If goals aren’t met, no bonus money is paid;
4.) Rewards everyone working as a team, including the owner.

Cons

1.) Decreases an individual’s incentive to excel;
2.) Some people might slack off, and let others pick up the slack.

System

1.) Have a two-tiered system. One bonus is paid if the store reaches its goal, and another if the staff reaches its own group goal;
2.) Find out what percentage the owner sells. If the owner makes 60 percent of total store sales, then that leaves 40 percent of the sales to be made by the other sales staff;
3.) Set your goal for the month based upon how much more you want to do over last year;
4.) On paper, pull out the percentage the owner should sell (e.g: 60 percent). This leaves the remaining 40 percent as the target for the other sales staff;
5.) If your salespeople reach their goal for the month, give them 4 percent of their total. (For example, if the store goal is $75,000 in sales and the staff is expected to sell 40 percent, their goal is $30,000. If they reach $30,000, divide up 4 percent amongst them based upon the percentage of the total hours they work (if three people work full time, they would divide up the bonus pot 33.3 percent to each person);
6.) If the store reaches its full goal (i.e.: the $75,000 mentioned above), then the sales staff now gets 6 percent of their share of their pot. So instead of getting 4 percent of $30,000, they now get 6 percent.

David Geller is a 14th-generation bench jeweler who produces The Geller Blue Book To Jewelry Repair Pricing. David is the “go-to guy” for setting up QuickBooks for a jewelry store. Reach him at [email protected].

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