When it comes to paying your sales team, it’s a little bit of the Wild West out there. While it’s common for your field crews to be paid hourly and your management team to be paid a salary, sales team members are in a class all their own.
There’s no one right or wrong way to structure your pay for your sales team, but it is important to evaluate if your current setup is financially sound and providing the proper motivation. Sales is a critical position in the company as they’re making sure cash flow is coming in steadily, so you want to make sure those team members are rewarded accordingly.
Popular Pay Structures
There are a number of different pay structures for salespeople, but four of the main options are 100 percent salary, salary plus bonuses, 100 percent commission or salary plus commission.
Providing 100 percent salary gives your employees the peace of mind they’ll have a guaranteed income to make ends meet, but they also don’t have any incentive to go above and beyond when selling. Providing a salary plus bonuses lets you incentivize reaching goals or selling certain projects. Paying salespeople only commission drives them to sell aggressively, but it also puts them at risk when certain factors are out of their control, such as the economy.
It also may attract employees who might be willing to do whatever they need to maximize their income, even if it’s to the detriment of the company and the client. For this reason, Krisjan Berzins, founder of Kingstowne Lawn & Landscape, based in Alexandria, Virginia, say they choose to provide their sales team a base salary plus commission. Berzins says early on in his career, he realized that many people are not solely motivated by money.
“I’ve found early on that just offering more money was attracting someone that was really interested in sales and making as much money as possible, not necessarily interested in the company and what we’re all about, what we stand for, and our customers and all of that,” Berzins says. “That’s a generalization. There are some exceptions.”
Blair Walton, owner and CEO of Element Outdoor Living, based in Wilmington, North Carolina, says they’ve always had a high salary base plus commission, which was based on the total sale. They shifted to gross profit-based commissions a few years ago.
Jonathan Lucci, general manager for Weed Man of Winchester and the Shenandoah Valley in Virginia, says they pay their sales team members an hourly rate plus commission. He says paying hourly gives their team members flexibility, but he is also against paying someone a set amount no matter how they perform.
“I would say as an overall philosophy, I don’t believe in paying any position of any kind that doesn’t have a variance according to performance,” Lucci says. “Whether it’s sales, whether it’s the technicians who are actually doing the work, whether it’s managers, I like there to be as much of a component as possible that is variable based on performance.”
Salary Ranges and Commission Percentages
Walton says their base salary is fixed but is evaluated based on performance and tenure. Their pay scale ranges from $70,000 to $115,000. He says once a sales team member’s sales goal is reached, they get a percentage bump in commissions.
Chris Vedrani, president of Planted Earth Landscaping, based in Westminster, Maryland, also pays their sales team a base salary plus commission, with the salary being based on their experience. Their salaries range from $45,000 to $65,000.
“We base our commission payout based on gross margin sold and produced – jobs sold at 45 percent-50 percent, (the) salesperson gets 1 percent of overall sale value,” Vedrani says. “50 percent-55 percent (equals) 1.5 percent, 55 percent-60 percent (equals) 2 percent, and 60 percent + they get 2.5 percent of total sold value. The salesperson gets 70 percent of the earned commission when the job sells and the other 30 percent of commission when the job is completed, paid by the client and the job costing is completed reflecting the actual gross margin produced.”
Vedrani adds that having the other 30 percent commission payout when the job is done helps keep the salesperson engaged in the project until it’s completed.
Ivan Katz, owner of Great Lakes Landscape Design, based in Oak Park, Michigan, says their current salary range is $65,000 to $85,000. Their salespeople receive a salary plus commission as well as benefits like a phone, a vehicle, uniforms, health care insurance, dental insurance, vision insurance, and SIMPLE IRA with a three percent match and profit share. Berzins notes that benefits like these should not be overlooked as part of a salesperson’s income.
“We try to keep the total cost of their compensation under 8 percent of their gross sales,” Katz says.
Vedrani agrees that their sales members’ compensation is typically around seven to eight percent, including their base salary and car.
At Weed Man, they have outside sales team members who are out in the field selling and their inside sales team, who answers customer calls for estimates. Lucci says the inside sales employees earn a five percent commission while the outside sales employees earn a 10 percent commission because their selling is more difficult.
Kingstowne has a sliding scale for their commissions. Sales team members will be paid a certain percentage until they hit a specific number in sales volume. Once they hit that waypoint, the commission percentage increases. The more they sell, the bigger their commission percentage becomes. Berzins says at the end of the year, they’re really rewarded as opposed to any sale being the same value. He says it’s proven effective for them.
None of these companies have a cap on the amount of commission employees can earn, saying technically, the sky’s the limit for them.
“The more the team can sell, the more they win, the more the company wins,” Walton says. “We like to set strong sales goals and they are based on what we need to produce in a fiscal year.”
Advice for Others
The best way to determine a sales pay structure that works for your company is to talk to your team and find out what they want. Vedrani notes, “happy salespeople sell work.”
“There are many different ways to structure your system,” Walton says. “In the end, do your research, talk to your team, and do what you think is right by them and the company.”
Berzins adds other aspects like flexibility or the ability to work remotely might matter more than money to some salespeople.
“Every person is a little bit different in what motivates them, so being aware of that is important,” Berzins says. “Don’t assume that everyone just wants more money.”
Katz stresses it is key to have a firm grasp on your financials and understand what the cost of your sales team’s compensation is relative to the sales they bring in.
“The key metrics to monitor for us are the gross profit margin, net profit margin per job and company-wide, review and job cost every completed project and utilize throughput to make sure you can adjust as needed with pricing,” Katz says.