Win / Win Compensation Strategies

Presented by:Tim McLellan, CPA

B2B CFO®

Salespersons’ Duties

• Identify Potenial Customers

• Identify Potential Projects

• Calculate Estimates from Plans

• Field Measure

• Obtain Pricing From Manufacturer

• Negotiate Installation Labor

Salepersons’ Duties, Cont.

• Create Written Proposal

• Order Materials

• Manage Project

• Schedule Work

• Prepare Invoices

• Collect Receivables

Types of Sales Comp Plans

• 100% Commission

• Draw Against Commission

• Salary Plus Commission

• Salary Plus Bonus

• Straight Salary

Pay Based On

• Sales Dollars

• Gross Margin Dollars (profitability)

• Other

volume incentive – annual or monthly

timely collection

Range of Pay

Company:

Low Range – 8% of Sales

High Range – 12 % of Sales

Individual Cash Compensation:

Low - $50,000

High - $200,000

What’s Included In Comp?

• Auto allowance• Company Car• T & E Allowance• iPhone• Health insurance – employee or family• 401(k) or other retirement• Vacation / Personal Days• Payroll Taxes / Workers’ Comp

Comp Based on Sales

• Company budgets total sales expenses at 10% of sales.

• Benefits shown on prior page equal 2% of sales.

• Sales Commission rate is 8% of sales.

Comp Plan based on Margin

• Usually includes a floor, example - no commission paid on sales less than 10%.

• Sometimes includes a ceiling but not always.

• Three varieties to a margin based plan:– Fixed Rate– Graduated Scale– Point for Point

Overhead Factor

• There is usually an overhead factor of 2 - 4% built into the calculation on a gross margin plan.

• Job Runner / Floor Manager allows user to set overhead rate based on Material, Labor or Both.

Fixed Rate Plan

Salesperson receives 25% of gross margin on all jobs with a margin > 10%

Example calculation: $100,000 Sell price. $20,000 Gross Margin.

Commission would be $20,000 x .25 = $5,000

Graduated Scale

0% - 10% = no commission

10% - 20% = 15% commission

20% - 30% = 20% commission

Above 30% = 30% commission

Point for Point Plan

• 10% job earns 10% commission

• 11% job earns 11% commission

• 12% job earns 12% commission

• 30% job earns 30% commission

Monthly Payment Calculation, ex 1

• Salesperson is on a $5,000 per month salary or draw.

• Salesperson earns $7,000 in commission in March.

• Salesperson will receive commission of $2,000 in April commission payroll cycle.

Monthly Payment Calculation, ex 2

• Salesperson is on a $5,000 per month salary or draw.

• Salesperson earns $4,000 in commission in March.

• Salesperson is under draw by $(1,000) so no additional commission is earned, continued on next slide…

Monthly Payment Calculation, ex 2 cont.

• Salesperson is $(1,000) in the hole from prior month. • Same draw of $5,000 per month. • Salesperson earns $7,000 in commission in April.• Salesperson will receive commission check of $1,000

in May ($7,000 - $5,000 draw - $1,000 make up from prior month).

Budgeting for GM Plan

$2,000,000 average annual sales

$400,000 expected gross margin

25% average commission rate

$100,000 expected compensation

Decide on monthly draw amount 60/40, 75/25

Questions?

Tim McLellan

tmclellan@b2bcfo.com

404-915-5539

www.b2bcfo.com