Paying Young Sales Professionals (Part 2 of 3)

Sales people who have survived their first year (and I use the term “survived” with purpose) will probably go on to become decent sales people. Some of them will even become great (but not that many—maybe 6%).

So how do we pay sales people who are no longer rookies but not yet at that level of experience and skill that the truly great sales people attain?

Clearly, a level of pay that is above that of a first-year rookie is appropriate, provided the sales person is producing at a rate that is better than a rookie. (For convenience, let’s call this sales person an apprentice. They have graduated from pure rookie-dom, but are not yet at the level of a journeyman.)

A rookie sales person should produce between $300,000 and $600,000 in sales the first year they are on the payroll. Some do even better than this. But these are decent lines in the sand to aim for and are based on contractor surveys.  There is a very high correlation between first year performance and good sales training, by the way, suggesting it is well worth the contractor’s money to send his rookie to a good sales school early in their career.

How much an apprentice should produce will depend on a number of factors, such as population density of the area, the median household income, and the dealer’s brand and pricing levels. Let’s set up a case that should be typical.

Let’s compare two cases: one where the apprentice lives in a fairly populated area of good median household income, and the other where she lives in a remote area with a lower MHI.

For the “rich” case, let’s suppose the apprentice works in Charles County, Maryland. This county has a population of 124,691 people and a MHI of $80,697 (well above the US average of $51,283).  My research shows that the residential and light commercial potential of Charles County, MD is $31,600,000 or so. Since most rookies don’t do much in the commercial arena, let’s say that our apprentice’s market is about $20 million retail. There are 66 HVAC shops in Charles County, MD. 18 of these are of a size large enough to warrant a full-time comfort consultant.

Those 18 shops probably comprise about 67% of the sales in that county (shocking, but true!), so the 18 shops that would probably have a comfort consultant account for maybe $13.5 million in sales. 1 of the 18 shops is much larger than the others (and thus probably does more commercial than residential) so 17 shops are making about $13 million in residential sales. Each shop is thus averaging about $765,000 in residential sales.

This would be the median point of the data, so I would expect to see perhaps one comfort consultant writing up $1.5 million in sales a year and the rest trailing off from that. An average of $765,000 in sales is a decent level for an apprentice in an area like Charles County, MD.

The “poor” case comes from Jackson County, Alabama— population of 53,134 and MHI of only $38,761. The residential potential here is  only about $7 million, and 6 contractors who might employ a comfort consultant. But these 6 probably account for $2.5 million in sales, or only about $410,000 per comfort consultant. Again, that would be the median value, with some apprentices selling perhaps as little as $200,000 and others up to $650,000.

Quite a difference from the denser and richer county in Maryland!

Now that we know the boundaries of the playing field, we can begin to construct a reasonable comp plan for each case.

For an apprentice, we need to start weaning them off a strong base and small commission towards a smaller base and larger commission (the ultimate goal being 100% commission).

I would also consider moving the total pay for an apprentice up from the bottom of the range we saw in the first blog in this series (see here).  If we started a rookie at about $42,000 total pay, we might consider $55,000 or so a good starting point for an apprentice (but again, we must be sure to base this on the local market using a tool like salary.com).

If we made the base only 60% of the total pay, the apprentice would draw about $33,000 a year as base pay (or draw against commissions) and $22,000 in commissions and bonuses. If sales are $500,000 a year, the commission rate would be about 4.4% of sales (when made off a company-supplied retail price book)— we had the rookie set at 1.6% of sales.

For a $750,000 producer, a pay around $64,000 would be reasonable— 60% as base ($38,400) and 40% as commission (based on 3.4% of sales).

In the third (and last) blog in this series, we’ll consider the journeyman sales professional, the seasoned veteran who knows how to sell in a variety of environments and brings in jobs that make the company very profitable!