In Minor's League: June 2001

ANSWER: Compensation strategies for sales staff in the landscape industry are all over the map. Very few are exactly alike because few companies are exactly alike. I can, however, give you some basic ideas to consider.

The most basic three plans that companies use are: the flat salary plan, the base plus commission plan and the straight commission plan.

With a flat salary, there is no additional incentive for the sales staff. This type of plan requires significant monitoring and the use of other motivational tools that encourage your sales staff to deliver results. There are two primary advantages of this plan. First, you know your sales costs for the entire year. Secondly, your sales staff will not be compensated in a manner that is inconsistent with your other managers.

The disadvantages of this plan are the increased management required for these employees. Generally speaking, motivating them will be more challenging. Also, this form of compensation does not encourage salespeople to go above the call of duty to produce.

If you elect to pay salespeople a base salary plus a commission, you will most likely pay them a salary that covers their basic needs. The commission gives them the potential to earn more money based on their production. This way your salespeople can "get by" even in the slow months but they still have an incentive to produce more. The downside is the challenge of how to pay commission. Should it be individual based or team based? You risk alienating other managers in your organization if the commission is based on individual performance and the sales staff has significantly more income potential than the operations people.

The third option is to pay salespeople a straight commission whereby their entire pay depends on their performance. Usually there is more earnings potential for the salesperson with this type of plan, but the risks for them are obviously greater – his or her entire earnings are at risk. The advantage of this approach is that your sales costs are limited based on the sales team’s production, which limits the company’s fixed expenses. The downside is that you may experience significant turnover in the sales ranks and, if you are not careful, you could end up having a higher cost of sale, thereby reducing your profits.

Regardless of which plan you choose, here are a few keys to consider:

1. Make sure you reward or encourage profitable sales. Use your financial data to determine your most profitable service lines, then pay more to the salespeople who sell the high-margin services.

   Additionally, if you can track individual accounts via job costing, only pay commission on those that deliver an acceptable gross margin. If key results aren’t monitored, your salespeople may sell the product or service that is easiest to sell at whatever price they can sell it.




2. Create a plan that rewards the entire team that works on the sale. Don’t put a plan in place where the sales staff constantly fights with the operations staff.

   This is one reason why my particular bias for incenting salespeople was always team based. Our salespeople received a fair base salary and had certain quotas that they were encouraged to reach. I compensated them at year-end with a team bonus that all mid-level managers and above shared in. The bonus was also weighted for based on customer retention and company profitability.




3. Make sure you are not giving away the house for "lay ups." You should not have a plan that pays full commission on house accounts (existing customers or call-ins not cultivated or serviced by the salespeople).



4. If you pay commission, make sure there is a provision in your sales agreement that allows for the company to be reimbursed if the account goes away prematurely or the customer does not pay the bill. Make sure that you are covered, whether you pay your salespeople when the contract is signed, the invoice is issued, the job is complete or the money is collected.



5. With a new plan, make sure you communicate to the salespeople that it is a work in progress and that it will be reviewed in six months and annually thereafter. Otherwise, salespeople think they have a deal for life. Communication and honesty are the keys.