When it comes to employee pay schemes, if it sounds too good to be true, it probably is. My basic rules of people management are to pay people well, hold them accountable and practice sound management techniques.
Employees will forgive you for all kinds of management mistakes but messing with their pay is an unpardonable sin. It is also important to remember that employees are employees-not owners, not vendors, not entrepreneurs, but employees-and no system will turn them into owners. Also, any pay system must be perceived as fair and both parties need to win.
Now, let's get to the point of this article. Sales people are employees and employees must be managed. It never ceases to amaze me that contractors will micromanage every dollar and hour spent on jobs, but not salespeople. Field workers are working on a specific job with guidelines and you know where they are supposed to be. Yet salespeople are turned loose to drive all over town and chase appointments with little control. A series of myths and misconceptions seem to drive sales management logic. Also, if you, as owner, are the salesperson, most of these myths still apply.
Myth 1: "The salesperson will act like me." Since salespeople do many of the tasks the owner used to perform, it seems like many owners psychologically confuse the fact that the owner, not the salesperson, owns the business. Should a job be bid incorrectly, it is the owner's, not the salesperson's home. It is your business and just like any other costs, you must manage sales costs.
Myth 2: "By paying a sales commission, if the salesperson does not sell anything, it does not cost me anything." At first appearance, a commission-only system seems ideal, but such systems contain numerous pitfalls. Commission-only salespeople can be too independent. Frequently, commission-only salespeople do not feel like they are part of the company. Remember, they are rewarded for selling jobs, not building the company. Such systems can also make it difficult to attract new people who may not be able to take the risk of commission-only. A commission-only company may also attract the wrong type of salesperson. We all are familiar with the "pinky ring" tinman sales stereotypes and most contractors are not happy with that type of sales culture.
But the real issue can be lost opportunity costs. It can be tough to determine the cost of a lead, but many national statistics say a lead costs $100 to generate. If your salesperson only sells 10 percent-or 1 out of 10 lead-generated estimates-then it is costing you $1,000 in advertising costs for every job sold, even if no commissions are paid. Once upon a time, the predominate sales mentality in the car industry was to fire and replace the poorest sales producers each month. The problem is that such a philosophy can be great for your competitors' business. If someone comes in to buy a car and the salespeople fail to sell it, they are simply going to sell the car for your competition. Incompetent salespeople are actually selling for your competition on each and every lead you lose!
Myth 3: "If I miss the sale, it really does not cost me anything." The problem with this logic is that a missed sale from a sales time perspective is as time consuming as the sales you made. Suppose your average job size is $3,000 per job, your closing ratio is 20 percent, and your total sales were $300,000. That means that 80 percent of the time you spend selling were missed opportunities. You would have to estimate a whopping 500 jobs to sell your $300,000. Raising your closing ratio to 30 percent allows you to sell another 50 jobs for $150,000 with no more sales or marketing expenses. Stated another way, raising the above company's closing ratio 10 percent, improves sales by 50 percent.
Myth 4: "As long as sales closing ratios are high, the person is a good salesperson." Sales closing ratios can be very misleading statistics. What if a salesperson sells 50 percent of his jobs; a 50 percent closing ratio is high in the industry but such closing ratios are not the only indicators of success. Suppose half of your leads are repeat customers and half are from yellow pages or some type of advertising. What if your salesperson sold 80 percent of the repeats or "give me" jobs and 20 percent of the newly generated leads? This still equates to 50 percent. However, your salesperson looks more like an order taker than a salesperson. The stronger your company image, the longer you have been in business and the better your local brand name is, the easier it is for someone to sell your company.
Myth 5: "They have to sell from a price sheet, so I control costs and jobs cannot lose money." There are a lot of ways to lose money and just because the price is set does not mean that the salesperson cannot be creative with the quantities and job conditions. What if you are only going to pay salespeople based on gross profits? This leaves the sales person at the mercy of the production crew. Or your solution might be to pay them a percentage of company profit. Profit can be very hard to define. Do you really want your people telling you when you should and should not replace your company truck?
Myth 6: "Good salespeople have the God-given gift of gab." Wrong. Actually, the best salespeople are intelligent introverts who are good listeners. Selling is an acquired skill, focusing heavily on listening. While it might not be as exciting as some of the "go get ‘em" motivational tapes, our Business Listening CD or cassette, available at www.proofman.com, offers realistic skills you can use to win sales. Your goal is to find out what customers want, generate trust, and then sell them a job that will satisfy their needs.
Myth 7: "I track my salesperson's closing ratios to make sure they don't hurt the company." Actually, you track your salesperson's closing ratios to protect the salesperson and help coach them. In fact, even if you do not have a salesperson, you need a system for keeping score on yourself. Anyone can get off track, have some bad luck, experience a few bad customers, or become ill or just bored with the job. Without measurement, how can you tell when the salesperson falters? Locks are put on doors to keep honest people from stealing. Sales management is to keep good people from going bad.
Sales management is about facts and realities not motivation. Can you answer the following questions? If not, you probably are not very good at sales management.
Do you know your closing ratios by type of lead?
Do you know your average job size?
Do you know how long it takes to develop and present your average estimate?
Do you have a set monthly meeting to review sales and marketing information?
To be profitable, contractors must manage production. Sales are no different and salespeople must produce.