WHEN YOU GO TO buy a pair of tennis shoes, you have to figure out what you want. Are they for running? Working in the yard? Playing sports? Each pair has its pros and cons. And the most crucial thing of all: they’ve gotta fit your feet.
The same holds true when choosing a compensation plan for your sales team. Which option’s advantages mean the most to your operation, and which disadvantages will hurt you least? And, most importantly, which is the best fit for you, your staff, and your customers?
Overall, straight hourly or salaried stores have the lowest closing ratios. The first option is straight salary or hourly wages. Many stores that offer their salespeople a flat salary have better teamwork than other stores. Conflict is virtually nonexistent, as no one is competing for their livelihood. But, salaried salespeople are not as motivated to sell and to close — they get paid either way. Overall, straight hourly or salaried stores have the lowest closing ratios. Stores using this option may not be achieving their full potential in regards to revenues.
The second option is salary plus commission (a similar option is the draw against commission). This plan, the most popular in the industry today, is for people who want a guaranteed salary but are still motivated to close and earn a commission or spiff. Generally, the commission level is 3%, 5%, or 10% of sales, and the salary level varies accordingly. Salary plus commission plans give your employees confidence that they’ll have their paycheck at the end of the month, but doesn’t provide quite as much incentive as straight commission.
The third option, straight commission, delivers the highest closing ratios in the country, on average. Some stores offer 7%, others 10%, and one even offers 15% — the highest I’ve seen. In this plan, people only get paid when they sell and close. Working for commission gives the salesperson the best opportunity to make money based on their efforts alone.
Unfortunately, straight commission plans also create conflict. Whose customer is that? Who said hello? Who looked at them first? If you’re using straight commission, you know what I mean. (I’ll get into how to deal with these issues in next month’s column.)
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It takes mature, self-confident players to work under a straight commission plan successfully. Self-confidence, product knowledge, professionalism, and selling/closing skills are absolute necessities. You can’t be a clerk… you’ve gotta know how to sell.
It takes mature, self-confident players to work under a straight commission plan successfully. The final option is salary and team-based bonuses. In such plans, employees get monthly bonuses based on meeting team goals. For example, a team goal might be reached with a jackpot of $5,000 — the person who made 30% of the sales would earn 30% of the bonus, etc. A certain percentage goes to your administrative and shop employees as well, which means they will want to help your sales team more in closing sales and delivering customer service. When goals are met, the team celebrates. If not, no one benefits. So, it’s a true team effort. These plans are becoming increasingly popular, and I love them, as long as closing ratios stay high.
Which option is best for you? There are successful examples of all four. That said, most stores that do a lot of volume pay some type of commission. The salesperson wants to do a better job with customers so that the customer will return time and again and ask for them. This creates personal trade, a benefit for both your salesperson and your store (if your salesperson ever leaves your store, statistics say that on average, only 3% of their trade will follow).
Ultimately, no matter which compensation plan you choose, your salespeople should be so good at selling, the customer can’t even tell they were sold. Then everybody wins. If your plan delivers anything short of that, scrap it and try something new. You may find it’s a perfect fit.
This story is from the October 2005 edition of INSTORE.
