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Evaluating commission & salary pay structures when hiring salespeople
Since I entered this industry nearly 19 years ago, I have believed that sales professionals should be paid straight commission. It is how I began, and I made a good living selling water treatment equipment. A few years after beginning my career, I was offered a position as regional sales manager, and everyone I hired and trained was paid straight commission after a short training period during which they earned a smaller salary. Any turnover we had usually occurred within the first six months as employees realized how much work being a creating sales professional was. Sometimes, the above-average income they could earn took longer to get to than they were able or willing to wait. Nonetheless, I was able to develop a mature, responsible team of sales professionals who created nearly half of their own business, and all of them were paid straight commission.
In my opinion, people who receive a solid base salary often learn to live on that base salary and rarely are incentivized to produce beyond that. There certainly are exceptions, but I have seen the same thing over and over again with dealers across the country. I personally would rather purchase from a sales professional who worked on commission, because in theory, he or she is going to do more to help me and earn my referrals (although that often is not the case).
When I became sales manager, Michigan’s economy was already beginning to show signs of the recession that would hit the rest of the country hard four years later, but the housing market had not crashed yet. Although it was tough, I was able to hire and train a team of up to 12 sales professionals making an above-average income on straight commission pay.
It is strange how it works, but when the unemployment rate is high, and there are hard-working, honest and tenacious professionals looking for work, it actually is easier to find, hire and retain them, even if the pay offered is commission only.
When I started Moti-Vitality full time seven years ago, the recession was in full bloom, and finding, training and retaining sales professionals, regardless of where our clients were in the country, was fairly easy. As long as the client we were hiring for offered an environment where the salespeople could be successful, retaining them long enough for them to see the fruits of their creating efforts was much easier.
As we move toward the end of 2017, the economy definitely is improving. Construction is up, people have money and consumer confidence is strong. The national average unemployment rate is approximately 4%, but in many states it is approximately 2% to 3%. The good news is that customers have money to buy water treatment equipment. The bad news is that it is difficult to find people to sell that equipment to them.
I have seen that this year more than any other time in my 15 years of hiring and training water treatment sales professionals. It is unbelievable how many fewer resumes we get, and how much lower the applicant quality is. I also have seen the industry lose some good people because they were offered jobs at pay rates that were difficult to refuse.
Most economists agree that an unemployment rate of 4% to 5% is considered full employment. That means everyone who wants to be working is working. The people who are not working often are unemployable or do not want to work. Obviously, good people are still looking for work because of legitimate reasons, but those people are not going to be on the market for long. Water treatment dealers hoping to expand their sales teams need to evaluate their recruiting practices and pay structures if they want to attract professionals.
I recommend exploring your benefit packages. Insurance is still a huge attraction for professionals, but as the economy continues to improve, income potential and stability are big as well. If you want professionals, you have to be willing to pay for professionals. That means giving them the opportunity to earn a stable and consistent income. Although this goes against my natural instincts, it also may mean giving them a higher base salary or drawing against commission, at least until they have developed a base of creative business. I would still caution against making the base salary high enough that someone could live on the base alone. There is no faster way to create complacency, in my opinion.
What that base is or how long you pay it will vary with each dealership and region, but I would encourage every owner or manager to re-evaluate his or her pay structure and make adjustments to account for the changing economy if necessary.
There are plenty of pay structure options out there. Ask other dealers in your network how they are doing it. Regardless of where you get the ideas, be careful not to get caught unaware. You do not want to be left in a position where the only people left to hire or who will work at your company are the ones no one else wanted.