What does it cost your company to sell a job? The 8% commission you pay on sales? Actually, the fully loaded cost of selling involves more than just commission. For instance, at Capizzi Home Improvement, in Cotuit, Mass., owner Tom Capizzi pays salespeople 9% commission but calculates a fully loaded sales cost of between 11% and 12%, including vacation pay, recruitment, and training.
SALES MANAGER OVERHEAD Scott Hayes, owner of New York Sash, in Rome, N.Y., says that his company pays salespeople “about 9% on average commission,” but estimates his fully loaded sales cost at “more like 15%” when overhead, bonuses, and other factors are added.
At Those Remodeling Guys, in York, Pa., owner and president Mark Curry counts the company's sales commission as a direct cost — reasoning that it is specific to the sale — and when calculating fully loaded sales costs adds 2% of revenue as “sales overhead” to account for his sales manager's compensation, including her bonus. “Calculating costs is really all tied to how you manage your profit-and-loss statement,” Curry says. “Certain expenses have to be accounted for. There is no right or wrong. What's important is that however you do it, it has to be consistent.”
ADDITIONAL COSTS What also goes into that fully loaded sales cost, Curry points out, is “anything tied to the sale,” such as sample cases, company-supplied cell phones, and travel.
At Kearns Brothers, a Michigan home improvement company, the salespeople get company cars. Not surprisingly, those cars are “lettered to the nines,” marketing and sales manager Gary Kearns says, and the cost is part marketing, part selling expense. A Capizzi Home Improvement salesperson whose personal vehicle is lettered gets a monthly reimbursement. “I put that under marketing,” owner Tom Capizzi says.
And if salespeople are employees, Hayes points out, then payroll taxes, workers' compensation, unemployment insurance, and FICA are all included in sales cost.
All, some, or most of these expenses — payroll taxes, benefits, bonuses, contests, recruiting, and training — exist for home improvement companies. But because some companies see certain expenses as direct costs (commission) and others see them as general and administrative costs, they tend to appear in various places on the balance sheet. “If someone tells me that their sales overhead is only half a percent [of revenue], that doesn't mean he's doing a better job,” Curry says. “It only means that he's putting the other 1.5% somewhere else.”