| What I’m going to share with you today is | | | | An example will drive the point home quite clearly. |
| the single most powerful trick I know for | | | | Let’s say your salesman has estimated a |
| supercharging your bottom line. | | | | job’s direct costs will run $10,000. Let’s |
| At some point in time, if you are going to grow | | | | look at how the usual approach, draw plus |
| your construction business beyond $2 million, you | | | | commission, compares against my recommended |
| are going to need someone working on sales full | | | | approach for driving desired sales behavior. |
| time. Now,maybe sales is your thing and you | | | | The salesman being compensated with the |
| want to do that full time. Fantastic. | | | | standard salary plus 2% of sales has little |
| It’s almost always best when a business | | | | incentive to risk losing a sale by raising price. If he |
| owner is committed to selling. But even if you sell | | | | sold the job at cost, he wouldearn a $200 |
| successfully, you may still end up wanting to add | | | | commission. If he sold the job for $15,000, he |
| another salesman. | | | | would earn a $300 commission. He only makes an |
| If sales isn’t your thing, then you will definitely | | | | extra $100 for substantially increasing the |
| need to hire a salesman. Either way, you are | | | | likelihood of losing the job. |
| going to be faced with a critical decision. | | | | He will not raise the price to $15,000 just to earn |
| How should you pay your new salesman? | | | | the extra $100. Of course, you lose money if he |
| Draw (salary) plus commission? Bonuses for sales | | | | sells the job at $10,000 but he doesn’t care. |
| generated? Increased commission with increased | | | | It’s all about volume, right? |
| sales volume? A higher commission for new | | | | Now, let’s look at my recommended |
| customers? Straight salary? | | | | approach. |
| All of these are commonly used approaches. Not | | | | Your salesman earns nothing if he sells the job at |
| one of them is likely to produce the profit results | | | | $10,000. He earns $1,000 if he sells the job for |
| you seek. | | | | $15,000 and he earns $2,000 if he sells it for |
| If you let your salesman have his way, he will | | | | $20,000. How motivated will he be to pursue the |
| want a draw plus commission. Most will ask for a | | | | highest price possible? Very, very motivated. |
| pretty stout draw and a relatively modest | | | | Do to the potential windfall he can earn, he will |
| commission based on revenue sold. Don’t | | | | become a master at qualifying customers. He will |
| agree to that! | | | | not spend time on price sensitive customers. He |
| Draw plus commission lines the pockets of your | | | | will aggressively pursue the customers who value |
| salesman regardless of whether he is making you | | | | your company’s superior services and are |
| any money. The purpose of draw plus | | | | willing to pay for them. |
| commission is to drive sales volume. Don’t fall | | | | These are exactly the customers you want him |
| into the trap of thinking sales volume is important. | | | | to pursue because not only are they profitable, |
| You need your salesman to focus on | | | | they tend to be far more loyal, and tend to be |
| PROFITABLE work. Let your competition sell the | | | | far more willing to refer you to their friends, |
| unprofitable work. That’s work you don’t | | | | family, and professional associates. |
| want and you certainly don’t want your own | | | | Look at what you get when you are paying a |
| salesman bringing it to you. | | | | 20% commission on gross profit. You pocket |
| How do you get your salesman to chase | | | | $4,000 for every $5,000 of gross profit your |
| profitable work? You align his pay to profit. | | | | salesman generates. Sure, a great salesman will |
| Put in place a pay plan that rewards him for | | | | make a killing with this type of pay plan, but |
| profitable work and punishes him for unprofitable | | | | you’re going to make an even greater killing. |
| work. Basically, make him a pseudo-partner. It is | | | | You want your salesman earning $200,000 |
| surprisingly easy to do and I’m going to show | | | | because that means he contributing $800,000 to |
| you how. | | | | your OH&P. Imagine having four such |
| 1. His entire compensation should be based on | | | | salesmen in your company. How well off would |
| commissions on gross profit (a commission rate | | | | you be? |
| often in the 20% range). | | | | This is the type of pay plan that will draw top |
| 2. He should be guaranteed a minimum income, | | | | salesmen like flies. Where else in the construction |
| whether his earned commissions surpass it or not. | | | | industry, or any industry, are they going to have |
| 3. His commission rate should stay the same | | | | a chance to make that kind of money? |
| regardless of sales volume or profit generated. | | | | You know the difference between a $50,000 |
| 4. If he doesn’t earn his guaranteed minimum | | | | salesman and a $200,000 salesman? You go |
| income within a reasonable time period, say 18 | | | | broke with the first and get rich with the second! |
| months, you replace him. | | | | In summary, the best way to supercharge your |
| With this approach your salesman will be highly | | | | bottom line is to implement a sales commission |
| motivated to ask for the highest price possible. He | | | | plan that rewards your sales force for generating |
| will not leave $100 on the table, because with a | | | | gross profit. In doing so, you will make sure that |
| 20% commission, he would be leaving $20 behind. | | | | they have your best interest in mind. |