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Salary : Commission Ratio

We are a company that is primarily a project house/systems integrator, but also distributes general lines. We do not sell lift trucks. What have other companies found to be the best ratio of salary to commission in order to motivate and retain salespeople? Have other companies tried different salary/commission ratios and programs within the same sales force with any success?
                                                 — Dave Kenealy, President, DAK Equipment & Engineering Co.

Ken MacDonald: We are a lift truck house and we prefer straight commission. I believe a true salesperson is an independent businessperson who utilizes the dealership’s support services. We have a generous commission and provide vehicles, cell phones and expenses, so they don’t have to worry about having the tools to compete. I do believe our industry is anemic and that is going to continue to lead to difficulties with retaining and attracting people. We must get back to proper margins to support the infrastructure. There is overcapacity now and, as a result, economic forces of supply and demand will rule. However, being the eternal optimist, someday we will not have enough qualified people and will be able to return to the healthy margins necessary to attract and retain. But until then it will be difficult, and we will continue to bounce along the bottom.

John Cosgrove: When dealing with salespeople, the percent of commission should be consistent for everyone. Salaries can vary based on length of service with the company or performance. It’s often difficult and time consuming to figure out commissions on large engineered projects as opposed to general lines sales. One of the ways we control this is that we have figured our engineering cost and charge an hourly rate against systems type jobs. This figure is added to the cost of the job and commissions are then based on the remaining profit. General line sales are handled the same way and are paid at the same percent of the profit.

Before considering any sales compensation program, you must first establish what your overhead can support. It’s important to list all the tools you provide your sales force to succeed, such as advertising, phone, fax, cell phone and health insurance. An excellent way to find out what other integrators do in the material handling industry is to review MHEDA’s DiSC Report, which is available through the MHEDA office.

I’ve found that having one plan, with a set percentage for commissions, keeps your sales force happy and focused on gaining and maintaining accounts. When salespeople are uncertain about their commission plan, it affects their performance.

Mike Dubbs: We have found a compensation plan based on gross margin to be very effective. Our salespeople receive 40% of the gross margin in the form of salary, expense reimbursement and commission. This ratio provides an opportunity for our salespeople to be highly compensated and it promotes loyalty.

Dan Senecal: Since you are both a systems house and are involved in general line sales, I would think a hybrid compensation program is necessary since there are differing skill sets required in these markets. We have implemented differing compensation programs under the same environment based upon criteria of experience, skill set and account responsibility without conflict and feel this is the best way to obtain results based upon corporate objectives.

Material Handling Equipment Distributors Association

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