Articles Tagged ‘Commission-based business’

Give a Salesperson a Base Salary; and Don’t Pay for It!

Monday, December 26th, 2011

Salespeople like base salaries becuase it makes them feel secure.

Business owners are weary of base salaries becuase they could end up losing alot of money if the salesperson doesn’t perform.

This is why many business owners offer what I like to call a “guaranteed-base”.

The guaranteed-base is a hybrid between a full base salary and a draw. Base salaries are risky for business owners, and most salespeople do not like taking loans out against their performance through draws.

A guaranteed-base states that the salesperson is guaranteed to make a certain amount of money every month – unless they maky more in commissions, and then they would get the higher amount.

The difference between a guaranteed-base and a salary is that commission is included in the guaranteed base, and not added on top like in the case of a salary. The difference between a guaranteed-base and a draw is that the salesperson will always make at least the guaranteed-base amount, regardless of sales, and does not have to pay back the difference as in the case of a draw.

The guaranteed-base amount is usually set at 50% of what a typical base salary would be.

Here are a couple of examples.

#1 – A salesperson makes less in commission than their guaranteed-base:

Guaranteed-base = $3,000
Monthly commission earned = $1,100
Salespersons monthly check = $3,000
#2 – A salesperson makes more in commission than their guaranteed-base:

Guaranteed-base = $3,000
Monthly commission earned = $5,100
Salespersons monthly check = $5,100

This compensation plan is especially helpful when you are working with mid-experience sales people, or have a salesperson in a 3-6 month training program.

The key to making this type of compensation successful is to set VERY clear performance expectations with your sales staff, review their key performance indicators weekly, and fire them quickly if they are not following their KPIs.

Jamar Cobb-Dennard
jamar@jamarspeaks.com

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None Of Us Want To Come In Second Place

Thursday, September 29th, 2011

It seems that General Motors Co. wants to tie their union-represented workers’ pay to their work performance. This will be a major shift in how generations of auto workers have been compensated.

“We are trying to give hourly workers the same metrics as salaried workers,” GM Vice Chairman Stephen Girsky said Tuesday at the Detroit auto show. “There is a big pay-for-performance element going through the company and there is going to be more of it.”GM wants more flexible pay levels for workers as a way to encourage better performance and avoid locking the company into handing out big raises when the company isn’t performing well, company executives say.

If they change the system they will be able to measure their employees success immediately. I believe they will also build more productive employees.

Does this work ?

The Federal Government tries it on and deals with the conflicts, http://bit.ly/ns3JI3

You can use pay or other incentives to increase output, http://bit.ly/oAuwN5

Incentives can be customized for employees, http://bit.ly/nT1F1l

Linking employees pay to output does more than affect the bottom line of a business, It affects how an employee feels about his performance. Getting a pay check at the end of the week has more meaning when you actually see what you produce. Imagine how farmers feel when their seeds actually produce fruit?

Conceptually one and one make two but if you actually put two pennys in a child’s hand, it brings it to reality. Many children are taught at a young age that if they take out the garbage they will receive an allowance, this is linking pay to performance. When I realized the value of money I was enthralled with taking out the garbage and kept asking if there was something else I could do to get paid. I couldn’t wait until I was 14 to start baby sitting. As I “earned from doing” I realized that producing had value and I was capable of producing. I bet that many of you had the same experience. It was all good!

Why don’t more retail stores adopt the policy of performance based pay? I often hear there will be more competition and the customer will suffer–why would a salesperson wait on a customer if they weren’t being paid? I would say it’s part of their job! It’s not easy devising a commission based sales structure but it has a big pay off for the store and the salesperson.
For information on how to listen to Lisbeth Calandrino’s program on Radio Indy Smallbiz next Tuesday morning from 9 to 9:30am, link here for the Guide to the Radio Indy Smallbiz Schedule.

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