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Running Your Business

Updated: July 8th, 2008 05:26 PM EDT

A Sales Compensation Plan that Supercharges Profits

Ron Roberts

What I'm going to share with you today is the single most powerful trick I know for supercharging your bottom line.

At some point in time, if you are going to grow your construction business beyond $2 million, you are going to need someone working on sales full time. Now, maybe sales is your thing and you want to do that full time. Fantastic. It's almost always best when a business owner is committed to selling. But even if you sell successfully, you may still end up wanting to add another salesman.

If sales isn't your thing, then you will definitely need to hire a salesman. Either way, you are going to be faced with a critical decision. How should you pay your new salesman?

Draw (salary) plus commission? Bonuses for sales generated? Increased commission with increased sales volume? A higher commission for new customers? Straight salary?

All of these are commonly used approaches. Not one of them is likely to produce the profit results you seek. If you let your salesman have his way, he will want a draw plus commission. Most will ask for a pretty stout draw and a relatively modest commission based on revenue sold. Don't agree to that!

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Reader Comments
Sort By: Date PostedPoster

Royalty, what royalty?
(05/15/08 - 01:35 PM)

As Jim will attest (wink, wink), the business owner must know his numbers to make this system work right.

Chip, in answer to your situation, allocation of the follow-up costs would depend on their nature. A mistake we originally made was letting the cost allocations get too complicated. Simple works best.

Ron

ron@FilthyRichContractor.com

20 % sales on gross profit
(05/14/08 - 11:18 PM)

I like your idea of the commion based on gross profit,I will use the idea Thank you Dean Powell

Dean Powell
Tacoma, Wa.
DEAN@precisionpanel.com

calulating profit isnt so easy
(05/14/08 - 09:23 AM)

Interesting article and our company has considered this approach. We are in equipment sales rather than contracting however the concept is the same. Our problem is that calculating profit is not so easy because of unknown follow-up costs after the sale. I would guess this is the same in the construction services business. any comments there? One idea would be to wait a set amount of time after completion of the sale to determine net profit on the sale or job.

Chip
Pennsylvania


(05/13/08 - 05:31 PM)

wheres my royalty

jim Bebo


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