Distributors Weigh In On Sales Rep Compensation
With a number of payment models to choose from, sales compensation is a tricky business for jan/san distributors. Many distributors struggle to find the winning compensation plan that benefits their sales reps, and at the same time, one that also strengthens their organization as a whole.
Before distributors choose the right compensation model, they should weigh several factors, including the type of sales reps they want, the kind of products they sell, their target customer and the length of their sales cycle, as all of these factors come into play, says Dave Kahle, expert sales coach and president of DaCo Corp., Comstock Park, Mich.
“The big picture view is everything depends on the situation, the expectations and the objectives of that particular distributor,” he says.
According to a survey conducted by Sanitary Maintenance magazine, today’s popular compensation models vary from distributor to distributor. But when choosing the right compensation plan for their sales reps, most distributors agree that service time is very important.
Nearly half (47 percent) of jan/san distributors surveyed by SM say they are paying their veteran sales reps a straight commissioned salary. The reason why so many distributors find this traditional route so popular, according to Bill Weidmaier, president of Iowa-Des Moines Supply Inc., Des Moines, Iowa, is because commissions motivate salespeople to sell harder.
“Commission is a motivating source for salespeople,” he says. “If they work hard and produce, they’re going to make money, but if they don’t, they don’t make money.”
Survey results also show that for distributors who are paying veteran sales reps on commission, 83 percent are paying a percentage of the gross profit for each item sold. The other 17 percent are paying a percentage of the gross revenue.
Half the respondents say that their sales reps’ commission is 26 percent to 35 percent of the gross profit. Next highest was 30 percent of respondents, stating that they pay 16 percent to 25 percent commission on gross profit.
The next popular compensation plan for veteran salespeople according to 26 percent of distributors surveyed is salary plus commission. At Capital Paper, Kentville, Nova Scotia, Canada, Jeff Zettler, the company’s president says this method of compensation is quite rewarding for his sales reps.
“I guess to them they look at the commission as more of a bonus,” he says. “It certainly provides them with the opportunity to make more money with the more they sell. Most of the guys treat that as a bonus.”
Thirteen percent of distributors surveyed say their compensation varies by individual sales reps, while just 8 percent of distributors are paying veteran salespeople a straight salary.
Of those distributors surveyed who pay veteran salespeople on straight salary, 39 percent say they are paying their sales reps between $25,000 and $39,999 a year. Seventeen percent of distributors are paying under $25,000, 17 percent are also paying between $40,000-$49,999 and another 17 percent pay as high as $50,000-$64,999 a year.
When it comes to compensating new or inexperienced sales reps, distributors’ compensation outlook differs from veteran sales reps. In fact, 39 percent of distributors are starting new or inexperienced sales employees on a salary plus commission compensation plan. Most distributors start sales reps out on this method so they can pay them a low base salary, while also paying them for their sales performance.
At Armchem International Corp., Fort Lauderdale, Fla., Andy Brahms, the company’s president, gives incoming salespeople a 13 month guaranteed base salary plus incentives before switching them over to straight commission. Brahms does this because he says it takes a significant amount of time for new salespeople to build a customer base and build a territory.
“Since we’re really in a pay for performance career, you have to incorporate pay for performance at the beginning because after 13 months we want to put them on straight commission,” he says.
The next most popular payment model is straight salary (23 percent), while only 12 percent start new sales reps out on straight commission.
“It’s not at all unusual to have a new salesperson start out on salary and then at some point, when he’s built the business, transition him to a more complex and incentive driven compensation plan,” says Kahle.
Those distributors who are paying new salespeople straight commission, 77 percent are paying a percentage of the gross profit for items sold. New sales reps make commission similar to their veteran colleagues. Thirty-nine percent of respondents say their salespeople make a commission between 26 and 35 percent of the gross profit; 26 percent make a commission between 16 and 25 percent.
The average straight salary of a new sales rep according to the majority (56 percent) of distributors is between $25,000 and $39,999. Sixteen percent are paying between $40,000 to $49,999 and 15 percent say they are paying new sales reps under $25,000 a year.
No matter a sales rep’s service time, when it comes to compensation, distributors are best suited to strike a balance, says Kahle.
“In practice, very few 100 percent salary compensation plans really work and very few 100 percent commission programs work the way the distributors want them to,” he explains. “So the reality is both of these styles of compensation are in today’s world frankly obsolete.”