Compensation Strategies That Boost Sales

Establishing clear goals and providing meaningful incentives are key to a good program.

Although the demand for remodeling services is escalating, the number of firms battling for this business is also on the rise. In this competitive environment, some remodeling firms are relying on creative compensation strategies to generate more sales.

Jim Cory, editor of Replacement Contractor magazine, notes that in the past most salespeople in the remodeling industry were paid straight commission. Today, more firms use a salaried sales force augmented with bonus plans containing measurable goals. "In addition to the recruiting advantages, there is less pressure on salespeople to 'hammer' customers into signing a contract," Cory says.

David Bryan, president of Blackdog Builders, Salem, N.H., still believes in the straight-commission approach, however. "Salespeople are a unique breed. They have an entrepreneurial spirit and like to create their own opportunities in terms of income," he says. He compensates his seven-member sales team by offering commissions based on gross profit of the finished project. "We don't want salespeople to just sell volume — we want them to sell profitable volume. If their projects aren't priced and sold profitably, their commission structure is reduced," he explains. However, the company does allow employees to draw on their commission earnings to provide steady income.

Establishing Objectives and Rewards

For a compensation program to be successful, regardless of the financial incentives offered, it must recognize the importance of the sales reps in attaining the company's goals and provide clearly defined rewards for their achievements. Components of a good sales-compensation program include:

  • Establishing clear sales goals aligned with the organization's business strategy and vision for the future.

  • Keeping an employee’s base salary competitive with what other firms in the industry are offering.

  • Providing meaningful incentives, such as commissions and cash bonuses, for meeting target sales goals and exceeding them.

  • Using one or more quantifiable measurements of performance. Options include sales volume, profit margin, sales of new remodeling services, customer-satisfaction ratings and number of customer referrals.

Customer referrals are generally acknowledged to be the best source of generating leads for sales. But closing the sale can be a major challenge in an industry where the typical closing rate is about one sale for every four appointments. Thus Cory recommends that firms reward salespeople for aggressively pursuing leads, perhaps increasing the commission for closing the sale from 10 percent to as much as 20 percent, for example.

Another challenge is avoiding disparity in compensating the sales team, a problem Blackdog encountered because the company has sales reps in two separate divisions: kitchen and bath design and construction. "The average sale in kitchen and bath is $20,000 to $30,000, while the average sale in construction is $75,000 to $100,000. However, our commission structure for both divisions was the same," Bryan says. "This was causing frustration, so last year we began permitting our kitchen staff to sell construction work so they would have the ability to earn more revenue."

Sweetening the Pot

Although money is the prime motivator for salespeople — whether in the form of commissions or cash bonuses — some remodeling firms are tacking on other incentives to boost employee performance and satisfaction. These include providing free cell-phone service, paying a large percentage of vehicle expenses, offering profit sharing, reimbursing expenses for sales training, and promoting top performers to management positions.

Contests can also be great motivators. "Our construction sales staff created a team goal to sell $4 million in gross profits. As a reward for achieving that goal, I agreed to buy mountain bikes for each of them. They definitely got into the team effort," Bryan says.

Sales employees also attach great importance to the image of the company and the quality of its products and services. A culture that fosters an excellent reputation in the industry goes a long way toward motivating employees.

As Bryan puts it, "You can't sell something you don't believe in."

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