HVACR Business

JUL 2017

Help hvacr contractors master the critical components of business management.

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9 HVACR BUSINESS JULY 2017 www. hvacrbusiness .com • All business activities are expected and compensated • Keeps the cost of sales fixed • Easily managed Disadvantages: • Does nothing to drive sales or mix of business, because salespeople would run leads, give quotes and only sell what customers want without explor- ing all options • Little to no incentive for salespeople to perform and excel • Does incentivize initiative or extra effort • Rewards mediocre and poor perform- ers the same as top performers • May yield performance complacency or even demotivate salespeople to per- form as senior pay is not significantly offset from newbie pay and perfor- mance is not rewarded • May increase direct sales costs over other plans e salary plan works well when the main objective of compensation is pros- pecting or servicing accounts. is is not the case in residential sales where the pri- mary function is to sell an account and turn it over to operations. Certainly a salesperson should follow-up to ensure customer happiness and make additional future sales. Salaried sales people don't produce the same results they would if on full commis- sion. Some managers prefer to pay a par- tial salary so they can expect salespeople to be in the office periodically to do adminis- trative tasks, such as answer phones, order materials or stage jobs. A salesperson's job is to sell exclusively. It makes no sense to handcuff their perfor- mance with duties that can be performed by a wage or salary earning clerical per- son. Salespeople that demand or require a salary are not the type of people who are hungry enough to create and pursue opportunities to be successful. Commission Plan Salespeople are paid in direct propor- tion to their sales. e plan can be for straight commission or a draw/advance- ment against commissions earned. e percentages paid are discretionary and covered in direct cost of sales. Commission incentives can be paid based on one or more of the following : 1. A fixed percentage of topline revenue, gross profit or net profit 2. Different rates by product/service type 3. Different rates by grade/tier of product/service 4. Different rates for existing customers versus new prospects 5. Commission enhancement for self-generated leads that sell Commissions should be paid based on topline revenue and not gross or net prof- it. Commission scales should remain fixed as a percent of sales revenue generated over all sales at all times and be tied to the level or grade of product sold with higher per- centages for higher margin products. Your job is to ensure proper pricing to cover compensation and all other costs, as well as profit levels, and train salespeople to quote and sell properly so that margins are met. Salespeople are ONLY allowed to ne- gotiate prices except within guidelines of promotions. Financing and technician spiffs and commissions paid for leads turned over may be considered direct costs, but I feel should be covered in de- partmental overhead costs. Advantages: • Provides greater incentive than a salary plan • Pay only for sales performance • Easy for salespeople to understand and calculate earnings from a sale Salaried sales people don't produce the same results they would if on full commission. continued on page 11 • Salespeople have unlimited earning capacity • Compensation is proportional to sales • e company typically has a reduced sales expense due to increased revenue Disadvantages: • Emphasis may be placed on closing sales versus selling the proper scope of work • May not develop loyalty that a salary may provide • May yield wide variances in income between salespeople • Salespeople may debate whether commission pays them for non-sales related activities • Salespeople may quote all leads think- ing sales is a numbers game • Salespeople may only pursue high probability prospects

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