Looking to cut overhead? Many companies are, but one area that most are reluctant to mess with is commission structures. Although it may seem plausible to raise commissions to encourage more closes — or lower them to retain bigger profits — playing yo-yo with commission percentages could be bad for business.
Prince William Home Improvement, in Woodbridge, Va., has maintained largely the same sales compensation system since the company's inception 22 years ago, the major change being that where it once paid 10% across the board, it now pays anywhere from 6% to 12%, depending on product. Reps earn bigger commissions for selling the top-of-line triple-paned window the company carries, less for its standard and step-up window products.
Much like Prince William Home Improvement, American Home Design, in Goodlettsville, Tenn., has rarely changed its straight commission — 7% to 11%, again based on product — with the exception of an increase for gas inflation. Owner Don Bruce says that cutting commission during tough economic times simply isn't fair and would effectively demotivate reps.
OTHER TOOLS Rather than mess with what works — the company's commission system — many home improvement companies offer bonuses and other perks.
For instance, American Home Design uses quarterly bonuses and annual trips to motivate reps to sell more. Prince William Home Improvement uses monthly and yearly bonuses, lunches, and an annual trip to Mexico. This year's addition to the bonus bag: a Super Bowl ring. The company's bonus structure, however, did undergo changes after management determined that the $75,000 monthly sales goal had become too easily attainable. A salesperson given 35 leads but who only closes on six appointments is no longer considered “impressive,” general manager Greg Sliger says. “If you made six deals, you'd be in the bonus area.” To reach the first level of bonuses, the company increased the marker to $100,000. “Last year, we had six people with $1 million in sales or more,” he says.
BETTER BONUSES American Siding & Window Systems, in Urbandale, Iowa, bumped its commission rate up from 10% to 12% on sales of jobs greater than $25,000 to motivate reps to sell higher-ticket items.
Too often, a salesperson will “take the path of least resistance,” selling a lower-priced product just to make the sale, co-owner Pat Pagano says. “We're trying to give them more of an incentive.” Bonuses have always played a large role in the compensation system. Reps can earn from $400 to $6,000 in sales bonuses. “Whether times are good or times are scary, you have to be able to go out and get that job sold,” Pagano says. —Amy Campbell is a freelance writer in Phoenix.