WOW.
That a lot of info.
I couldn't even read it all. :)
----- Original Message -----
From: Antony Tersol
To: gilliga...@gmail.com ; RE Marketing for home scale RE industry
Cc: RE-wrenches
Sent: Thursday, February 11, 2010 2:47 PM
Subject: Re: [RE-wrenches] [RE Marketing] sales commissions
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
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