18
Win / Win Compensation Strategies Presented by: Tim McLellan, CPA B2B CFO®
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
