Paying Rookie Comfort Consultants

The other day, I received an email from a territory manager in the Midwest who I have known for almost 20 years. He is one of the sharpest men I know in this business, and he wrote to warmly discuss how my blog posts have been helpful to him and his dealers. I am grateful for that! But he also suggested a topic that has lead to this series of posts—how do you pay sales people, especially beginners?

In the LIBRARY section of this web page, you can download an article titled “Pricing For Commissions.” I explain in that article (click here to download a copy) how to set your pricing to recover commissions so your company nets out the profit you want. But I do not explain in that article how to pay sales professionals in the first place.

Let this first article of a series of 3 lay some groundwork.

Let’s begin with a first-year sales person (I won’t call him or her a professional yet—that honor has to be earned, and they have not earned it yet). We’ll call this person a Rookie.

Pay must be tuned as much as possible to two vectors (forces): performance and motivation. I’ll come back to performance later in this blog. But for the motivation vector, let’s consider some key issues.

Most sales Rookies today are going to be entering from a younger generation than those who will probably hire and oversee them. This is important because as it turns out, motivators vary with age groups.

In 2005, I wrote a white paper titled “Managing a Sales Force”, which contained several pages on compensation. (I will post that white paper in the Library soon.) Based on recent research on managing and compensating sales professionals, some of the findings revealed that for older sales professionals (“veterans”), these things are highly valued:

• Retirement contributions
• Exceptional pay for high performance
• Independence
• Job security
• Location
• Travel
• Vacation

Contrast this with younger sales professionals:

• Total compensation
• Base/incentive mix
• Promotion opportunity
• Skills development
• Flexible work environment
• Co-worker quality

These are totally different lists! It suggests to me that a pay plan that works well for seasoned veterans will not work well for Rookies!

Rookies as a rule (and this is only a generalization) distrust commission only plans (where most veterans prefer them because of their unlimited earning potential). They prefer heavy base pay with small incentive pay because they don’t yet trust their skills to make sales at a level where incentive pay becomes a heavy element of their pay. They lack skills so value an environment where they can obtain them, and don’t like lock-step working conditions, preferring flexibility over structure.

So for a Rookie, I would suggest the following setup: start with a compensation package that is heavy on base (80% or more) and light on incentives. Offer them ample opportunity for training and skills enhancement. And don’t require them to punch the proverbial 8-to-5 clock.  In fact, since many of their sales calls will be made in the evening when they can talk to both decision makers of a household, having them report to work at 8:00 AM or 9:00 AM is not reasonable.

As for pay levels, you have to set them carefully. I would suggest that for those who live in a major metropolitan market that they consult a web site—www.salary.com.  This amazing site lets you analyze pay scales for free in major markets (and you can purchase detailed and deeper reports as an option). The trick is to select the right job category to get comparison numbers.

For instance, if I search the Phoenix, Arizona database at salary.com, using the “Salary Wizard” on the Employee side of the home page, I get to a dialog where I can ask to see typical salaries for various job titles. If I type “Sales representatives” for the job title and select “Arizona-Phoenix”, a whole screen of job positions that are in sales appears. I then search for the one that is closest in description to a Rookie position at an HVAC shop—say, Sales Representative I. I then ask to see the Base Salary range. In this case, base pay runs from $38,748 on the low end to $71,889 on the high end. The “Bonuses” tab reveals that with bonuses, compensation ranges from $42,423 to $93,243. The median salary is $52,955 and the median bonus is $11,019. The total comp has a large range—over 100% from bottom to top.

I would rank a truly brand new Rookie (with no sales training yet, no experience) at the bottom of that range. I might start a really good Rookie (with some training and a little experience) closer to the middle of the range. But I don’t think a true Rookie in Phoenix would be able to command $93,000 a year—unless he or she produced like a veteran!

Since I advocate that at least 80% of the salary be base, this would mean giving a Rookie (in Phoenix) a starting salary of $34,000, with a chance to earn another $8,000 or so in bonuses. This would result in a bi-weekly pay check of $1,414 gross plus bonuses.

The $8,000 in bonuses would come through a number of possible reward systems. But for a Rookie, I suggest that the bonus be earned as a percentage of the sales he generates when the Rookie uses a company-generated retail price book. In other words, the company has a “cookbook” pricing system that the Rookie must sell jobs from, not create his own take-off and job price on the jobsite unsupervised.

So how should we set the bonus rate?

That depends on a number of factors. The easiest approach is to assume the number of jobs a Rookie could sell in a year, using a retail price book. If he sells two jobs a week, that would be about 100 jobs a year. $8,000 divided by 100 jobs is $80 per job. If the average job is $5,000, that would amount to 1.6% of sales. Or, the owner could just set the first year bonus at $80 per job. (But the problem with that approach is that as the Rookie sells a big job, he gets the same $80 bogey that he would have made for a smaller sale.)

I would also set up an aggressive training program for this Rookie. (Personally, I would send him to The ACT Group’s No-Pressure Selling school for starters.) I would then explain to the Rookie that as he gains education and starts having better and better sales results, he will move towards a more incentive-based plan with higher earning potential. (That’s the performance vector.)

In the next post in this series, I will address how to pay newer sales reps who are no longer Rookies, but not yet seasoned veterans either.