July 4/11, 2016; Volume 30, Number 27
By David Romano
Dear David:
I am finding it increasingly difficult to find sales associates. Every time I mention the words “draw” and “commission” everyone under the age 40 declines the offer. I want to bring in some younger sales associates but this seems nearly impossible these days. And hiring experienced sales associates is very expensive and risky; they want such large draws when they start and a lot of them do not cover those draws for quite some time—some never get there. Why is this happening and what can I do about it?
Dear Old School Owner,
You are right: The words “commission” and “draw” are like a repellant to the younger generations. Saying “salary” and “bonus” will make hiring millennials much easier. But that does not mean you pay them a high salary and a small bonus. You also cannot offer a low salary because no one will want to take the job. You pay them the same way you would if you were paying draw against commission, but you replace the words “draw” with “salary” and “commission” with “bonus.” Changing the language is all it takes.
The salary you provide should not be more than 70% of what you believe will be a salesperson’s total annual earnings. For example, if you believe he will make $50,000 per year, salary should not exceed $35,000 per year or $673 per week. Your peers are going to tell you that is too much because they only pay $500 per week, but the truth is they were paying that 20 years ago; I guarantee they are also having issues hiring millennials.
Second, either a sliding scale or percentage of profit bonus will work. Keep in mind the average earnings for a flooring sales associate is 8.9% of sales and the average margin is just over 36%. If your goal is to be at the benchmark and you are paying a percentage of profit, you should pay out 25%. See, 25% of 36% equals 9%. If you are going to establish a sliding scale, I suggest you start with paying out 9% for a margin of 36% and scale up and down from that point. If the associate earns more based on sales and margin percentages, you pay out the difference in a bonus.
When it comes to commercial and builder jobs most of your peers pay out 30% of profit because the margin is nowhere near 36 points. If the payout percentage is too small, sales associates will not earn enough to want to stay with your company. For example, if your commercial sales guy sells $1 million at a 20% margin and you pay him 25% of the profit he would earn only $50,000 or 5% of sales; 25% of 20% equals 5%. If you pay him 30% of profit he would earn $60,000 (30% of 20% equals 6%), which is more in line with the current market for this type of sales associate. The same 70% rule I previously mentioned should apply here.
If sales associates do not sell at least 70% of what you expected on a monthly basis, you will overpay for performance and your cost of labor will swell. You need to make sure you identify sales deficiencies early, take corrective action and quickly turn around or turn out those who do not cover their salaries. I suggest you do not let anyone go over 90 days in a deficit. An even greater risk than overpayment is not being able to reach revenue targets because you cannot attract effective sales associates.