Does This Sales Salary/Commission Rate Seem Fair?

I am having a bit of a hard time wrapping my head around part of it.

Does this pay rate for a starting sales rep seem fair? Both for the sales rep and the company?

A base salary of $2500 + $500 in expenses +5% of the gross (assuming a 33% profit margin)?

Based on my rough math, the sales rep would need to make a minimum of $20k of sales per month for the company to break even on him. And that is before calculating overhead costs, works comp, employment taxes, etc...

From all that I read on the forum, this seems to be pretty much the standard. But I don't see how there is really profit in it for the company.

Thank you


What's the annual quota / target for the rep? $250,000? $500,000? $1,000,000?

Let's say $1 million, that would be $75,000 total ($25k base + $50k commissions). That sounds low for the rep.

Also, the $25k base sounds low for a rep relative to Integrator Salary Results 2014.

That said, key factors include: location and experience of rep. For a new person in a low-cost area this might be appropriate. For a senior person in a bigger city, probably not.

Btw, why don't you see the profit in it? At a low sales level (say $250,000 a year) it's not but you'd agree at a higher level, it is, yes/no?

If the sales rep hit high number then it is worth it. However in the $250K range like you gave then he isnt really bringing profit to the company. I guess it is more based on how much sales he actually does.

I guess a sliding scale good implemented that if the sales rep makes more then $500K sales then the percentage on the amount goes higher. Is that unheard of in the industry?

Thank you

$500,000, $1 million and higher quotas are feasible for security integrators, see: Salespeople, What Is Your Number / Quota?

Now, that does not mean it is feasible for all integrators or all reps at all integrators. One key factor is the average deal size. If that is $10,000, that means closing 100 of those deals a year, which could be tough. More often when I see $1+ million quotas, this is being done with a smaller number of multi-hundred thousand dollar projects (Project A is $250,000, Project B is $400,000, Project C is $80,000, etc., etc.).

A quota of $20k/month is next to nothing and gives the rep $48k per year. If he or she can survive on $48k/year (single, no kids, then perhaps yes).

$80k/month gives the rep $86k/year. This is low for a big city but good for rural areas, IMO.

I am more of an engineer and suck at commissions. But I do think that it depends on the sales rep. If he can't make his numbers it is adios. I always want my sales reps to be the highest paid. More commision means more profits for the company. I use a plan based on sales less job costs. As custom integrators the rep needs to calculate the hours. I hold them responsible for this by costing the job. Of course, if a labor overage was not their fault, I don't hold them to it.

$30k salary seems really low, even for entry level, but it's not uncommon to compensate for that with an agressive commission or bonus schedule. At the end of the day, a so-so sales person selling $500k a year is probably only worth about $50-60k per year, which leaves about $75-100k of gross profit for the company depending on the benefits package. IMHO, a security sales person selling systems -- not alarm contracts or near free intrusion systems -- should target $800k - $1m per year in sales. Smaller markets may be less, but unless they can bring in at least $600k, then it probably isn't worth it to either of you.

Here's a thought based on previous experience, you might want to consider paying based on the margin amount rather than the gross. This has become common because it puts some skin in the game for the rep when they see that selling at 40% puts more money in their pocket than 33%. Those margin points really add up and its good practice for sales reps to understand the benefit of improving margin. Back in the day when I was paid this way, I did everything I could to make sure that each job was as profitable as possible, so I know it works.

You can also consider a scaled approach where they earn a lower percentage on sales up to $500k, then a larger amount for sales up to $750k, $1m, and so on. It takes some thought as to how you would organize this and manage it, but it pays for performance, which is ultimately what any desirable sales person would prefer. If they're content with a higher salary and lower commission, you should know right away that they're not the best fit, at least as a sales person.

Just my 2 cents...good luck!

...depends on the things everyone said. Also depends what you're selling.

One comment I have is as a Sales Rep is I would not work on a "Profit" model. To many times I brought jobs in at 33% GPM however the internals of the company would find ways to erode it.

How is that fair?

That's a great point that I totally agree with, in which I would reply that one of my previous posts: [click here] . Salespeople who have to get quotes approved by operations should not be punished for jobs that come in below the estimated profit margins. Likewise, they should not be rewarded because operations did a kick a$$ job and came in earning more than estimated. They sold a job and should be paid on that job based on how it was estimated...that's what they have control over and what they should be paid on. The extra earned profit and/or loss should all be put into a bonus program for the operations team, so everyone is on the same page with regard to motivation to perform and have the opportunity to increase their income when they overperform.

That all said, this won't work for smaller integration companies or alarm shops that require their sales people to do their own estimates without operational oversight or approval. If this is the case, I'd probably recommend a fair base (enough to at least pay bills and live...high stress isn't always the best motivator) plus a commission paid on gross revenue with a quarterly adjustment or "kicker" based on profitability.

The key is to pay enough base so that sales people don't have to consider making bad decisions in order to pay the rent or feed their families. Then develop a compensation plan that rewards for achieving company goals (new biz, existing client growth, profitability, etc.). I can't recommend enough, though, that you remember the ops team. If business is slow, their biggest motivator to earn more money which typically is only accomplished by taking longer to do a job -- a complete conflict with profitability goals as well as a division between ops and sales. It's a delicate balancing act, but if you can achieve it, you'll have a plan that properly motivates your WHOLE team to perform without putting anyone in a position to take "bad projects" or poor margin projects just to make ends meet.

C, the distinction is often made on 'accepted' profits vs 'actual' profits. If the company / management accepts the job at 40% gross margins but the 'actual' profits are only say 20%, that would be on operations, not sales.

That said, I agree with you, if a sales person is commissioned on actual profit margins at the end of jobs, it's a problem all around.

Based on the revenue level, how can the company make money? With benefits, you are paying out almost $50k but bringing in $75k. That is awful. You need to do two things. First, raise the quota level. If a sales rep can't generate a minimum of $500k, find someone new. Second, change the comp plan to a percentage of the gross sale. Margins will vary all over the place, and you are much more interested in capturing clients for long-term life cycle revenue. I have done it at both of my companies and have written a book on it.

A good rule of thumb for a commercial security integrator - perhaps overly simplified, but that's what a rule of thumb is...

If a sales person hits their quota for system and RMR sales (minimum $900k including RMR contracts at total contract value) and their GPM minimum (typically 33% on systems), then their on target earnings should be $100k. I usually suggest a $40k - $60k base salary, depending on your organization's culture.

Again ... this is just a rule of thumb for a commercial security integrator.

I'd recommend doing a diminished base pay over time with the intent on getting the salesperson on full commission ultimately. Start off with a higher base pay and a lower commission percentage and once they start to make more sales, you will reduce the base pay and increase the percentage commission.Ultimately, they will be on full commission.

This helps both employer and employee. It doesnt freak the employee out by starting off full commission with little to no money coming in at first. But ultimately gives the employer the hungry commission based sales person they ultimately want the employee to become.

Make the percentage commission attractive and something to strive for so they wont be complacent in "the desert" of base pay so they can move into the "promised land" of full commission.

Im also with some other posters, I prefer basing the commission off of gross sale as opposed to gross profit. Makes it simpler for everyone involved and its easier for the employer to work the comissions into the sale price. You can always give your salespeople limits on pricing of products or services in which they can never sell under. This way it protects the employer, but also gives the salesperson flexibility to sell above that price if they choose, something that works out for both employer and employee.

Good Morning. This topic has been lying dormant for a while, but I am making some fundamental changes in our shop. I have read nearly all of the articles here and more elsewhere. I am missing one important piece of advice. With whatever scheme is implemented, what do you do if you have a good sales person, with a good package they like, but the economy is in the tank. Do you demand performance? Do you adjust the goals to take the economy into consideration? I appreciate theory, but I would appreciate specifics. What have others decided to do that works, if 2008 ever comes around again? From an integrator's perspective, although others are encouraged to offer opinions as well. Thanks and enjoy, its Friday!!

NOTICE: This comment has been moved to its own discussion: What Happens To Sales Commissions If The Economy Tanks?

Mark,

Excellent question. I created a new discussion just on that - What Happens To Sales Commissions If The Economy Tanks?