Monday, July 26, 2010

Business Operations Part II: Considering Commissions

Have you thought about paying a commission to your salespeople?
Will that become an incentive for them to work more efficiently or can that create other problems?

At the last Medtrade event in Atlanta two HME providers discussed this topic with me. There were completely different points of view expressed by each. The first one said that by paying a small commission to his showroom floor salespeople, they all became better professionals. The second stated rather emphatically that he had a bad result with each salesperson on the floor tripping over one-another to service the customer.

Interesting problems! I tried to determine how to make a “commission” also create a “payoff” for the principal. A few years ago, at the Medtrade meeting in Las Vegas, I heard a speaker include this situation in their talk. The answer made a great deal of sense and I want to share it.

When your company has outside salespeople, then a commission should become part of their salary. A certain percentage of the profit should be awarded on all sales, which have a gross profit of more than 20%. The company that paid a commission to these people told us that they gave 10% of the profit above the 20%. This worked out and he found that these people almost doubled their sales.

The other set goals for the profits from all floor sales in the showroom. All the salespeople involved shared a percentage of the profit each month. Since he had a very active showroom he divided 2% of the floor sales and shared it evenly with all his floor sales people. For his location, this proved to be very beneficial. Often, a customer who came in for a specific item and the salesperson showed related items that added to an additional sale.

So, I strongly suggest that you work out a program with your accountant to see how best to award your sales team.

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