Every lumberyard owner knows that one of the keys to a successful operation is having a good sales force. These are the people, both inside and outside of the yard, who bring in the sales and drive up the profit. Owners also know that the way to get the most out of your salespeople is through a fair pay system.
Here is where things can get tricky. Pay a salesperson too little and they may feel underutilized and become unhappy. Pay your sales force too much and they may become too comfortable and, dare we say it, lazy. With that in mind there are multiple pay systems out there for dealers to use. As a part of our recent ProSales 100 survey one of the questions we asked dealers was how their sales compensation structure is set up. Here's what we got in response.
The No.1 option, paying salespeople based on percentage commission on gross margin, was twice as popular as any other option at 46%. The next closest system was based on straight salary, which 22% of dealers said they use. Dealers have continued to hold these two systems in high regard as they were the top two in 2007, when the full effects of the housing crisis were really being seen and heard and sales numbers really dropped. Only a few percentage points separate the two from their 2007 numbers, with straight salary losing three points and commission on gross margin gaining three percentage points.
In third place, with 21%, was pay based on percentage commission on billed revenue and gross margin. Performance and goal based bonus systems were next with 19% of respondents paying their sales force that way. Next was pay based on percentage commission on billed revenue and pay based on percentage commission on collected revenue and gross margin, which were both used by 14% of respondents. Eleven percent of dealers answering the question used pay based on percentage commission on collected revenue and 10% based their pay on team-based incentives. Finally, 9% used some other form of pay.
It should be noted that respondents were able to check off all answers that applied to them, meaning that companies may used multiple pay systems based on personnel.
It appears that, even with the tough economic times, dealers are still hesitant to provide sales people with a straight salary. Owners tend to agree that a commission based compensation system is best, its just a matter of how and what that commission is based off of. Some, such as LBM business consultant Scott Ericson, argue that having an insecure sales force is the best way to operate.
"Security is traditionally thought of as a positive state, but it can also lead to complacency and apathy in salespeople," wrote Ericson in a December 2010 column for ProSales. "In my experience, top-tier salespeople, those who exceed your expectations everyday, never truly feel secure."
At the same time, though in second place was a straight salary, which shows that owners may be more apt to provide some security and income for salespeople, especially during times of poor economic conditions.