Every once in a while, there's a posting that's worth saving. This one goes in the "Organizing your business" folder. Thanks Matt. With this much wisdom available for free, what could I get if I bought you lunch and a beer?
On Thu, Feb 11, 2010 at 1:11 PM, Matt Lafferty <gilliga...@gmail.com> wrote: > Is it OK to be chicken sh#$ with salespeople who are full of bull sh#$ ? > > I don't know if this qualifies as the "wisdom" you were asking for, Marco, > but here's my take on the topic: > > I am in favor of being fair and supportive with employees. To a fault. > Outside salespeople are different animals and may need to be treated > differently than other employees. More often than not, in my experience, > outside salespeople with commission-based compensation are the biggest "Me > First" SOBs in the business... Regardless of whatever business or industry > it is. If they are a Pure Salesperson, they came from another industry > where > they had the same attitudes and practices. They do whatever it takes to get > their commissions and they snake around in any manner possible to ensure > somebody else deals with all the headaches they cause. A commissioned > salesperson is a hired gun by nature. Quite often they have little to no > loyalty to the employer or the customer. If things get slow or they're not > making the $$$ they thought they would, or they simply get bored, they move > on. But not before they get everything they can from you. If you (the > employer) are paying for their cell phone, 3G wireless, car, laptop, etc., > they will use all of them in their quest to find their next job. Seen it > happen more than once. > > I can think of precious few individuals who are the exception. That being > said, I still believe in treating them fairly and honestly. After all, > these > are the folks who get your company in the door with your customers. They > would tell you that you don't have a business if not for them. Depending on > your business model, this may be true to some extent. It may also be > completely untrue and, if it is, you need to adjust their attitude. > > In answer to Marco's question about commission payments for expansion > projects, I believe several factors come into play... Some of which have > been mentioned by others and some have not. > > For the edification of Mainlanders, I think it is important to understand > that Hawaii's current incentive structure favors expansion of PV systems > over multiple years. Year One plus Year Two systems equal a total project. > Asking the question of how best to deal with commissions in this > environment > is fundamentally different from asking it in other regions. Keep that in > the > back of your head. > > For the purpose of general evaluation, regardless of the region, I would > first address the question by asking if this is an infrequent situation vs. > one which is common or expected to be common? In the case of the Aloha > state, I would check the "common" box. This creates the need for a company > policy on the matter vs. dealing with it on a case-by-case basis. In areas > where actual future expansion is rare, I'd say the salesperson's > compensation should be what it always is. If your company did the original > installation, I might even recommend an extra spiff. Times are tight. Going > back and mining your existing customer base is good business. > > So.... Let's make a Company Policy. Since it appears that > commission-based-on-actual-project-profitability is not what we're doing, > we > need to address three scenarios: > > Scenario 1: Your company did not do the original install. > Scenario 2: Your company did the original install and this salesperson is > the orginal salesperson. > Scenario 3: Your company did the original install and this salesperson was > not the original salesperson. > > Scenario 1 is easy. They deserve full pop. Pay them like it was a > stand-alone job at whatever kW you're selling. Doesn't matter if they were > the original salesperson or not. If they were the original salesperson, buy > 'em a beer, too. Then tell them to get back out there and keep bringing in > their old boss' customers! (Note of caution: In Scenario 1, pay close > attention to the job costs and adjust your prices upward if needed. When > calculating job costs, be sure to include a number that covers warranty and > service reserves. Following others onto a jobsite has potential downsides!) > > The other two scenarios require a look at the actual compensation structure > and what the salesperson actually does for their paycheck. If less than 50% > of their gross compensation is commission-based, I say give them the full > commission in both scenarios. Treat it like two separate jobs and call it a > day. For purposes of calculating gross compensation, include any stipend or > base-salary, as well as any commissions and employer-paid benefits > (Retirement, Health Insurance, Vacation Pay, Performance Bonuses, Etc.). > For > the purposes of defining "commission", I include any base "per-job" and any > "quantity-based" wages. Quantity-based wages include things like $/W or % > of > anything. I would not include performance bonuses on the commission side of > the equation, but you may think otherwise. > > The greater the percentage of gross compensation that is commission-based, > the more I would start weighting what they actually do for their paycheck > in > figuring out how to deal with the expansion compensation. How much of the > design work do they do? Project management? QA/QC, permits, incentive > paperwork, final delivery and customer orientation? Do they support the > whole team or skip out when it's time to empty the trash cans and wash the > coffee cups? > > If all they do is get people to sign stuff, and whatever preliminary > "design" they hand off to the design staff is always way off from what it > really should be, that's one end of the scale. (This is probably the person > you wish you could fire but, for one reason or another, haven't yet... > Maybe > they're the only person doing outside sales besides yourself and you don't > think you can afford to lose sales right now, for instance.) If they bring > good survey info and a preliminary design that actually works back to the > office after their first site visit, and they help out all the way thru the > project, and are good with communication, and are good team players > overall, > that's the other end of the scale. > > Anybody who is pulling all of their own weight, and maybe more, deserves > full pop in all scenarios. If, for some reason, this "breaks the bank" on > these expansion projects, your current compensation structure is wrong in > some way, and you need to take a look at it. Any sales compensation > structure that does not generally track the profitability of the jobs is > ill-conceived and needs to be revised. Compared to profitability, sales > compensation might be a little more on some jobs and a little less on > others, but the trendlines should be pretty much parallel. Revising the > compensation structure might include a revision to your pricing strategy, > too. > > For Scenario 2 projects, test your current compensation structure against > treating the aggregate job as a single project. For example, if the project > ends up being Year One @ 3kW plus Year Two @ 3kW for a total of 6kW, how > much would they have gotten if it was a single 6kW? Subtract whatever they > got paid for the first 3kW from that and how much do you have left? Is that > a reasonable amount for the actual work they need to do for the Year Two > phase? Be sure to consider that, had the incentive structure been > different, > they likely would have sold the people the full 6kW the first time around. > If the expansion was discussed and accomodated in the design of the > original > system, in fact, they did sell the full 6kW in Year One. Year Two, they > really are doing paperwork for the sake of formality. The expectation, > substantial planning, and relationship building all happened Year One. In > these cases, the effort on the part of the salesperson is weighted far more > heavily in Year One. It is certainly reasonable to expect the compensation > trajectory to be similarly weighted. If the "remainder" from the test case > is not sufficient, how much of a flat-fee would you need to add to account > for the extra time compared to a single project? > > Here's how I'd approach that: Assuming similar margins, a 6kW job in 3kW > pieces over two years is more expensive for everybody than a single 6kW. > Pencil it out. How much more expensive? If it was a single 6kW project > under > your current compensation structure, what would your salesperson cost as a > function of % of revenue? Multiply that percentage by the total Two-Phases > price. This is the gross project sales compensation. Subtract Year One > compensation from this number and you have your Year Two compensation. If > they snivel about Year Two being too little, explain that Year One was > obviously too much and all Year Ones from now on are gonna be compensated > at > a lower rate to allow for Year Two compensations to be better. Stand your > ground and back it up. (This scenario could very well happen if you > front-load profits in the Year One phase and run lower margins in Year Two > phases. If you are doing this, you should consider that a bunch of Year Two > jobs in a single year without an offsetting amount of Year One jobs just > might bankrupt you! Consistent, increasing margins are your friend!) > > Scenario 3 projects are a little more difficult, but not by much. Where is > the salesperson who sold the job in Year One? If they are still with the > company, why aren't they taking care of their customer? Unless they are on > their way out of the company, they need to get their hind-end out there and > take care of this customer. Then follow Scenario 2 rules. > > Due to the unique nature of an expansion, consider an hourly or flat-fee > arrangement if you have a different Year Two saleperson. This is about the > most qualified lead you could hope for, after all. Not a lot of specialty > "salesmanship" necessary, but they don't have the personal relationship > with > the customer so they have to make that happen. If the job was handled > correctly the first go-round, this is an exercise in paperwork as much as > it > is anything. If there were "issues" from the first phase, particularly if > they were caused by the salesperson, then the new salesperson is gonna have > some extra cleanup to deal with. A decent, professional hourly compensation > in these cases should be fair to both of you. > > Managing a business that has the diversity of tasks associated with > Incentivized Grid Connected PV is a challenge, to be sure. The size and > model of your business matters. If you are running a business that is > basically Sales, Engineering, and Project Management, you have a different > set of challenges to balance from one that does turnkey, in-house > integration. If you have an organization large enough to have very defined > sets of responsibilities for everyone (i.e. Sales, D&E, Procurement, PM, > Construction, Delivery, Admin), you probably have more leverage in keeping > the salesperson in check and keep them focused on the sustainability of the > company. They are more replaceable in this type of organization than > others. > In fact, the salesperson is the MOST replaceable, LEAST valuable commodity > in this type of organization. Sales is sales. There's another vinyl-siding > salesperson out there who will be happy to take their job... If you're > running this type of organization, get that point really clear in your > head. > I wouldn't club people with it until they deserve it, but I would make sure > they know I know from Day One! > > In an organization where everyone has to wear multiple hats, you need a > cohesive team more than the former organization does. I am for > team-building. Successful teams are built of individuals who pull for the > team. This starts at the top. If everyone is compensated according to their > value to the team, they will work toward the progressive edge and all boats > will rise. I am for structuring a sales compensation package with a modest > base salary and commission based on per-project profitability, with a > profit-sharing spiff at the end of the year. Not every hired gun is gonna > think that's a great idea 'cause they want the money in their hand today. > Lazy-ass wannabe hired guns will slacker themselves and your company into > mediocrity. You don't want either of these on your team. Both of these > personalities are poison. You want the steady straight-shooter who takes a > longer view of things than just their next paycheck. Consider that changing > incentives create a boom-bust cycle. We all have to make hay when the sun > shines, but remember that the rain is gonna come. Be straightforward about > that with everyone. Make sure the company keeps building a warchest to keep > people employed during the down times. Share the wealth, but make sure it's > real wealth and not just a monthly bubble! > > The matter of how best to compensate the salesperson for an expansion > project really depends on your existing compensation and company > structures. > One area I didn't specifically address above is a non-employee/contract > salesperson. Frankly, I think they fit under the Scenario 2 & Scenario 3 > models. If your pricing and compensation structure is too heavily weighted > on Year One and they aren't chasing down the Year Two projects, you need to > change something. Either raise the price on Year Two to cover, or drop the > Year One compensation and hold something in reserve to carry to Year Two > compensation. I like the latter... It tends to reinforce that this is an > ongoing business and that there's still a carrot out there to go get. It's > too late to get some of the Year One compensation back for use against Year > Two if Year Two is here now! This is where you (the boss) have to lean on > them and impress the point that they already spent the dough and really > don't have that much to do for the Year Two balance. And put a help-wanted > ad on Craigslist. > > There are fat years and there are lean years in every business! > > Some general guidelines and considerations for Salesperson compensation > structures: > > * Don't let a salesperson hold your gonads. > * If you are keeping good books and tracking everything pretty tightly, > sales compensation that is tracked to profitability is the best and fairest > for everybody. (If the salesperson is a shark and you let them price stuff, > the possible exception to this could be the customer.) This model is really > good because it inpsires the salesperson to help reduce costs where they > can. Overall project efficiency drives lower costs more than any other > single factor. Accuracy at every step is the BEST way to increase > efficiency. Encourage accuracy and thoroughness. Discourage actions and > behavior that requires anything to be repeated or re-done on a project. > * If you are giving the salesperson latitude to drop the base price on > jobs > without getting too far into their own pocketbook, your profits will be > lower than they should be. You probably have the ratio of "per job" > base-pay > to "quantity commission" skewed too heavily on the "per job" side. This > symptom also shows up if they are commonly "missing" stuff on projects that > should be an adder, but you end up not charging for. This model is bad for > your business and salespeople that take advantage of it are lazy scumbags > that are already looking for greener pastures. Kick 'em to the curb, revise > your pricing & compensation structure, and get new blood. > * Determine what role(s) the salesperson is expected to perform in your > company. Really give this some thought... Do you expect them to know or > learn the ins and outs of solar from a technical perspective? Do you expect > them to do site surveys and hold them accountable when their info is > inaccurate or insufficient for design or construction? Do you expect them > to > participate in non-sales team meetings and show up in the office on a > regular basis? Do you plan to provide sales-tech support/engineering? How > much and when in the process? Where do your leads come from? Do you need > somebody that mostly answers phones or someone who is out there beating the > bushes? What is your primary market? Residential, commercial, utility? Do > you need somebody who can walk in the door, hit the ground running, churn > the deals for 6 months then move on? Do you need someone who plans to be > there for the long-haul and build a business with you? > * Do you want/need a Pure Salesperson for your organization? Pure > Salespeople are those ones that can "sell ice to an Eskimo". Pure > Salespeople, by nature, are NOT engineers (if they were engineers, they > were > lousy engineers). They can't stand and don't see the importance of > technical > details. They don't care about accuracy in anything other than making sure > their paycheck is as big as possible. A Pure Salesperson is self-centered > and has ADD about all things that don't smell like money in their pocket. > This characteristic has upsides and downsides. Depending on the depth, > direction, and maturity of the rest of your organization, the upsides may > outweigh the downsides. In some companies, you might want that shark and > have the back-end to deal with the headaches they cause. Personally, I > don't > like these types, but I give them their due. Think about it like this: We > all hate lawyers, but when the sh#$ hits the fan, we want the most ruthless > scumbag possible on our team and we pay for it. Pure Salespeople are that > ruthless scumbag. Do you want that same level of ruthlessness on your team > every day? Do you have the back-end to deal with the fallout? > * There is no "magic number" that salespeople should be paid. You need to > evaluate their role in your company against your margins and revenues. Be > sure to consider your other marketing... On the whole, your gross "sales > costs" include your "other" marketing costs. The salesperson is not the > only > one selling your company. Your entire company sells your company... > * If the salesperson's compensation is largely commission-based, it is > common for them to push for you to pay for as much marketing as possible. > Set your marketing budget and don't budge it. When they hit you up to > sponsor another Home Show or Trade Show, offer to co-op the cost with them > (including any hourly staff that you have to pay to be there). You can come > up with a spiff program that reimburses them based on profitability of > leads > that come from the show. What's good for the goose is good for the gander. > * I am for accountability. Listen to the rest of your team. If a pattern > of > laziness or inaccuracy by the salesperson starts showing up, nip it in the > bud. Be direct. If your design team is constantly having to re-do stuff > that > should be done by the salesperson, start docking their pay to compensate > for > the extra design costs. Same with admin. Hopefully your design team is > catching stuff before you roll crews with tools and glass. I wouldn't allow > more than one case of stuff not fitting before I start taking away > paychecks. Just 'cause you're getting paid on commission doesn't mean you > get to be a forkup. > * If your sales comp plan isn't directly tied to profitability, start > newbies out cheap. Set the target compensation and ramp their pay based on > performance. The goal is to get them up to speed and effectiveness as soon > as possible. If, for example, they are going to be expected to do survey > work and initial design/configuration, YOU are going to have to provide > training and support necessary to get them to the point where they can > actually achieve that in a manner consistent with your standards. Depending > on too many factors to count, this can take quite a bit of time and > everybody might starve meanwhile. Figure out if it's gonna work or not > earlier rather than later. > * Sometimes the right person might require modifying the position. For > example, you might find that the "right" person has zero technical ability > but has other qualities that make them the right person. Maybe it's your > wife or girlfriend or out-of-work brother-in-law. This might mean you have > to send a separate survey/design person to every site prior to signing > papers. Under most models, this person would not deserve the same level of > compensation that someone who could do all the survey and preliminary > design > work would. Adjust the job description and compensation accordingly. > * Your salesperson has the potential to cost you more money than anyone > else in the company. > * Your salesperson has the potential to make you more money than anyone > else in the company. > * Matt's preferred structure for system sales: Modest base salary + % > project margin + annual bonus based on company performance. > * Matt's preferred structure for PPA sales: Modest base salary + % actual > annual operational margin paid 1x per year for Years 1-5. > > Pray for Sun & Super Salespeople! > > Matt Lafferty > > > _______________________________________________ > Sponsored by Home Power magazine > Re-Markets mailing list > re-mark...@lists.re-wrenches.org > http://lists.re-wrenches.org/listinfo.cgi/re-markets-re-wrenches.org > >
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