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<DIV><FONT face=Arial size=2>WOW.</FONT></DIV>
<DIV><FONT face=Arial size=2>That a lot of info.</FONT></DIV>
<DIV><FONT face=Arial size=2>I couldn't even read it all. :)</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<BLOCKQUOTE
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV style="FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
<A title=tony@appliedsolarenergy.com
href="mailto:tony@appliedsolarenergy.com">Antony Tersol</A> </DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A title=gilligan06@gmail.com
href="mailto:gilligan06@gmail.com">gilligan06@gmail.com</A> ; <A
title=re-markets@lists.re-wrenches.org
href="mailto:re-markets@lists.re-wrenches.org">RE Marketing for home scale RE
industry</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Cc:</B> <A
title=re-wrenches@lists.re-wrenches.org
href="mailto:re-wrenches@lists.re-wrenches.org">RE-wrenches</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Thursday, February 11, 2010 2:47
PM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> Re: [RE-wrenches] [RE Marketing]
sales commissions</DIV>
<DIV><BR></DIV>Every once in a while, there's a posting that's worth saving.
This one goes in the "Organizing your business" folder. Thanks
Matt. With this much wisdom available for free, what could I get if I
bought you lunch and a beer?<BR><BR>
<DIV class=gmail_quote>On Thu, Feb 11, 2010 at 1:11 PM, Matt Lafferty <SPAN
dir=ltr><<A
href="mailto:gilligan06@gmail.com">gilligan06@gmail.com</A>></SPAN>
wrote:<BR>
<BLOCKQUOTE class=gmail_quote
style="PADDING-LEFT: 1ex; MARGIN: 0px 0px 0px 0.8ex; BORDER-LEFT: #ccc 1px solid">Is
it OK to be chicken sh#$ with salespeople who are full of bull sh#$
?<BR><BR>I don't know if this qualifies as the "wisdom" you were asking for,
Marco,<BR>but here's my take on the topic:<BR><BR>I am in favor of being
fair and supportive with employees. To a fault.<BR>Outside salespeople are
different animals and may need to be treated<BR>differently than other
employees. More often than not, in my experience,<BR>outside salespeople
with commission-based compensation are the biggest "Me<BR>First" SOBs in the
business... Regardless of whatever business or industry<BR>it is. If they
are a Pure Salesperson, they came from another industry where<BR>they had
the same attitudes and practices. They do whatever it takes to get<BR>their
commissions and they snake around in any manner possible to
ensure<BR>somebody else deals with all the headaches they cause. A
commissioned<BR>salesperson is a hired gun by nature. Quite often they have
little to no<BR>loyalty to the employer or the customer. If things get slow
or they're not<BR>making the $$$ they thought they would, or they simply get
bored, they move<BR>on. But not before they get everything they can from
you. If you (the<BR>employer) are paying for their cell phone, 3G wireless,
car, laptop, etc.,<BR>they will use all of them in their quest to find their
next job. Seen it<BR>happen more than once.<BR><BR>I can think of precious
few individuals who are the exception. That being<BR>said, I still believe
in treating them fairly and honestly. After all, these<BR>are the folks who
get your company in the door with your customers. They<BR>would tell you
that you don't have a business if not for them. Depending on<BR>your
business model, this may be true to some extent. It may also
be<BR>completely untrue and, if it is, you need to adjust their
attitude.<BR><BR>In answer to Marco's question about commission payments for
expansion<BR>projects, I believe several factors come into play... Some of
which have<BR>been mentioned by others and some have not.<BR><BR>For the
edification of Mainlanders, I think it is important to understand<BR>that
Hawaii's current incentive structure favors expansion of PV systems<BR>over
multiple years. Year One plus Year Two systems equal a total
project.<BR>Asking the question of how best to deal with commissions in this
environment<BR>is fundamentally different from asking it in other regions.
Keep that in the<BR>back of your head.<BR><BR>For the purpose of general
evaluation, regardless of the region, I would<BR>first address the question
by asking if this is an infrequent situation vs.<BR>one which is common or
expected to be common? In the case of the Aloha<BR>state, I would check the
"common" box. This creates the need for a company<BR>policy on the matter
vs. dealing with it on a case-by-case basis. In areas<BR>where actual future
expansion is rare, I'd say the salesperson's<BR>compensation should be what
it always is. If your company did the original<BR>installation, I might even
recommend an extra spiff. Times are tight. Going<BR>back and mining your
existing customer base is good business.<BR><BR>So.... Let's make a Company
Policy. Since it appears
that<BR>commission-based-on-actual-project-profitability is not what we're
doing, we<BR>need to address three scenarios:<BR><BR>Scenario 1: Your
company did not do the original install.<BR>Scenario 2: Your company did the
original install and this salesperson is<BR>the orginal
salesperson.<BR>Scenario 3: Your company did the original install and this
salesperson was<BR>not the original salesperson.<BR><BR>Scenario 1 is easy.
They deserve full pop. Pay them like it was a<BR>stand-alone job at whatever
kW you're selling. Doesn't matter if they were<BR>the original salesperson
or not. If they were the original salesperson, buy<BR>'em a beer, too. Then
tell them to get back out there and keep bringing in<BR>their old boss'
customers! (Note of caution: In Scenario 1, pay close<BR>attention to the
job costs and adjust your prices upward if needed. When<BR>calculating job
costs, be sure to include a number that covers warranty and<BR>service
reserves. Following others onto a jobsite has potential
downsides!)<BR><BR>The other two scenarios require a look at the actual
compensation structure<BR>and what the salesperson actually does for their
paycheck. If less than 50%<BR>of their gross compensation is
commission-based, I say give them the full<BR>commission in both scenarios.
Treat it like two separate jobs and call it a<BR>day. For purposes of
calculating gross compensation, include any stipend or<BR>base-salary, as
well as any commissions and employer-paid benefits<BR>(Retirement, Health
Insurance, Vacation Pay, Performance Bonuses, Etc.). For<BR>the purposes of
defining "commission", I include any base "per-job" and
any<BR>"quantity-based" wages. Quantity-based wages include things like $/W
or % of<BR>anything. I would not include performance bonuses on the
commission side of<BR>the equation, but you may think otherwise.<BR><BR>The
greater the percentage of gross compensation that is
commission-based,<BR>the more I would start weighting what they actually do
for their paycheck in<BR>figuring out how to deal with the expansion
compensation. How much of the<BR>design work do they do? Project management?
QA/QC, permits, incentive<BR>paperwork, final delivery and customer
orientation? Do they support the<BR>whole team or skip out when it's time to
empty the trash cans and wash the<BR>coffee cups?<BR><BR>If all they do is
get people to sign stuff, and whatever preliminary<BR>"design" they hand off
to the design staff is always way off from what it<BR>really should be,
that's one end of the scale. (This is probably the person<BR>you wish you
could fire but, for one reason or another, haven't yet... Maybe<BR>they're
the only person doing outside sales besides yourself and you don't<BR>think
you can afford to lose sales right now, for instance.) If they bring<BR>good
survey info and a preliminary design that actually works back to
the<BR>office after their first site visit, and they help out all the way
thru the<BR>project, and are good with communication, and are good team
players overall,<BR>that's the other end of the scale.<BR><BR>Anybody who is
pulling all of their own weight, and maybe more, deserves<BR>full pop in all
scenarios. If, for some reason, this "breaks the bank" on<BR>these expansion
projects, your current compensation structure is wrong in<BR>some way, and
you need to take a look at it. Any sales compensation<BR>structure that does
not generally track the profitability of the jobs is<BR>ill-conceived and
needs to be revised. Compared to profitability, sales<BR>compensation might
be a little more on some jobs and a little less on<BR>others, but the
trendlines should be pretty much parallel. Revising the<BR>compensation
structure might include a revision to your pricing
strategy,<BR>too.<BR><BR>For Scenario 2 projects, test your current
compensation structure against<BR>treating the aggregate job as a single
project. For example, if the project<BR>ends up being Year One @ 3kW plus
Year Two @ 3kW for a total of 6kW, how<BR>much would they have gotten if it
was a single 6kW? Subtract whatever they<BR>got paid for the first 3kW from
that and how much do you have left? Is that<BR>a reasonable amount for the
actual work they need to do for the Year Two<BR>phase? Be sure to consider
that, had the incentive structure been different,<BR>they likely would have
sold the people the full 6kW the first time around.<BR>If the expansion was
discussed and accomodated in the design of the original<BR>system, in fact,
they did sell the full 6kW in Year One. Year Two, they<BR>really are doing
paperwork for the sake of formality. The expectation,<BR>substantial
planning, and relationship building all happened Year One. In<BR>these
cases, the effort on the part of the salesperson is weighted far
more<BR>heavily in Year One. It is certainly reasonable to expect the
compensation<BR>trajectory to be similarly weighted. If the "remainder" from
the test case<BR>is not sufficient, how much of a flat-fee would you need to
add to account<BR>for the extra time compared to a single
project?<BR><BR>Here's how I'd approach that: Assuming similar margins, a
6kW job in 3kW<BR>pieces over two years is more expensive for everybody than
a single 6kW.<BR>Pencil it out. How much more expensive? If it was a single
6kW project under<BR>your current compensation structure, what would your
salesperson cost as a<BR>function of % of revenue? Multiply that percentage
by the total Two-Phases<BR>price. This is the gross project sales
compensation. Subtract Year One<BR>compensation from this number and you
have your Year Two compensation. If<BR>they snivel about Year Two being too
little, explain that Year One was<BR>obviously too much and all Year Ones
from now on are gonna be compensated at<BR>a lower rate to allow for Year
Two compensations to be better. Stand your<BR>ground and back it up. (This
scenario could very well happen if you<BR>front-load profits in the Year One
phase and run lower margins in Year Two<BR>phases. If you are doing this,
you should consider that a bunch of Year Two<BR>jobs in a single year
without an offsetting amount of Year One jobs just<BR>might bankrupt you!
Consistent, increasing margins are your friend!)<BR><BR>Scenario 3 projects
are a little more difficult, but not by much. Where is<BR>the salesperson
who sold the job in Year One? If they are still with the<BR>company, why
aren't they taking care of their customer? Unless they are on<BR>their way
out of the company, they need to get their hind-end out there and<BR>take
care of this customer. Then follow Scenario 2 rules.<BR><BR>Due to the
unique nature of an expansion, consider an hourly or flat-fee<BR>arrangement
if you have a different Year Two saleperson. This is about the<BR>most
qualified lead you could hope for, after all. Not a lot of
specialty<BR>"salesmanship" necessary, but they don't have the personal
relationship with<BR>the customer so they have to make that happen. If the
job was handled<BR>correctly the first go-round, this is an exercise in
paperwork as much as it<BR>is anything. If there were "issues" from the
first phase, particularly if<BR>they were caused by the salesperson, then
the new salesperson is gonna have<BR>some extra cleanup to deal with. A
decent, professional hourly compensation<BR>in these cases should be fair to
both of you.<BR><BR>Managing a business that has the diversity of tasks
associated with<BR>Incentivized Grid Connected PV is a challenge, to be
sure. The size and<BR>model of your business matters. If you are running a
business that is<BR>basically Sales, Engineering, and Project Management,
you have a different<BR>set of challenges to balance from one that does
turnkey, in-house<BR>integration. If you have an organization large enough
to have very defined<BR>sets of responsibilities for everyone (i.e. Sales,
D&E, Procurement, PM,<BR>Construction, Delivery, Admin), you probably
have more leverage in keeping<BR>the salesperson in check and keep them
focused on the sustainability of the<BR>company. They are more replaceable
in this type of organization than others.<BR>In fact, the salesperson is the
MOST replaceable, LEAST valuable commodity<BR>in this type of organization.
Sales is sales. There's another vinyl-siding<BR>salesperson out there who
will be happy to take their job... If you're<BR>running this type of
organization, get that point really clear in your head.<BR>I wouldn't club
people with it until they deserve it, but I would make sure<BR>they know I
know from Day One!<BR><BR>In an organization where everyone has to wear
multiple hats, you need a<BR>cohesive team more than the former organization
does. I am for<BR>team-building. Successful teams are built of individuals
who pull for the<BR>team. This starts at the top. If everyone is compensated
according to their<BR>value to the team, they will work toward the
progressive edge and all boats<BR>will rise. I am for structuring a sales
compensation package with a modest<BR>base salary and commission based on
per-project profitability, with a<BR>profit-sharing spiff at the end of the
year. Not every hired gun is gonna<BR>think that's a great idea 'cause they
want the money in their hand today.<BR>Lazy-ass wannabe hired guns will
slacker themselves and your company into<BR>mediocrity. You don't want
either of these on your team. Both of these<BR>personalities are poison. You
want the steady straight-shooter who takes a<BR>longer view of things than
just their next paycheck. Consider that changing<BR>incentives create a
boom-bust cycle. We all have to make hay when the sun<BR>shines, but
remember that the rain is gonna come. Be straightforward about<BR>that with
everyone. Make sure the company keeps building a warchest to keep<BR>people
employed during the down times. Share the wealth, but make sure it's<BR>real
wealth and not just a monthly bubble!<BR><BR>The matter of how best to
compensate the salesperson for an expansion<BR>project really depends on
your existing compensation and company structures.<BR>One area I didn't
specifically address above is a non-employee/contract<BR>salesperson.
Frankly, I think they fit under the Scenario 2 & Scenario 3<BR>models.
If your pricing and compensation structure is too heavily weighted<BR>on
Year One and they aren't chasing down the Year Two projects, you need
to<BR>change something. Either raise the price on Year Two to cover, or drop
the<BR>Year One compensation and hold something in reserve to carry to Year
Two<BR>compensation. I like the latter... It tends to reinforce that this is
an<BR>ongoing business and that there's still a carrot out there to go get.
It's<BR>too late to get some of the Year One compensation back for use
against Year<BR>Two if Year Two is here now! This is where you (the boss)
have to lean on<BR>them and impress the point that they already spent the
dough and really<BR>don't have that much to do for the Year Two balance. And
put a help-wanted<BR>ad on Craigslist.<BR><BR>There are fat years and there
are lean years in every business!<BR><BR>Some general guidelines and
considerations for Salesperson compensation<BR>structures:<BR><BR>*
Don't let a salesperson hold your gonads.<BR>* If you are
keeping good books and tracking everything pretty tightly,<BR>sales
compensation that is tracked to profitability is the best and fairest<BR>for
everybody. (If the salesperson is a shark and you let them price
stuff,<BR>the possible exception to this could be the customer.) This model
is really<BR>good because it inpsires the salesperson to help reduce costs
where they<BR>can. Overall project efficiency drives lower costs more than
any other<BR>single factor. Accuracy at every step is the BEST way to
increase<BR>efficiency. Encourage accuracy and thoroughness. Discourage
actions and<BR>behavior that requires anything to be repeated or re-done on
a project.<BR>* If you are giving the salesperson latitude to drop the
base price on jobs<BR>without getting too far into their own pocketbook,
your profits will be<BR>lower than they should be. You probably have the
ratio of "per job" base-pay<BR>to "quantity commission" skewed too heavily
on the "per job" side. This<BR>symptom also shows up if they are commonly
"missing" stuff on projects that<BR>should be an adder, but you end up not
charging for. This model is bad for<BR>your business and salespeople that
take advantage of it are lazy scumbags<BR>that are already looking for
greener pastures. Kick 'em to the curb, revise<BR>your pricing &
compensation structure, and get new blood.<BR>* Determine what role(s)
the salesperson is expected to perform in your<BR>company. Really give this
some thought... Do you expect them to know or<BR>learn the ins and outs of
solar from a technical perspective? Do you expect<BR>them to do site surveys
and hold them accountable when their info is<BR>inaccurate or insufficient
for design or construction? Do you expect them to<BR>participate in
non-sales team meetings and show up in the office on a<BR>regular basis? Do
you plan to provide sales-tech support/engineering? How<BR>much and when in
the process? Where do your leads come from? Do you need<BR>somebody that
mostly answers phones or someone who is out there beating the<BR>bushes?
What is your primary market? Residential, commercial, utility? Do<BR>you
need somebody who can walk in the door, hit the ground running, churn<BR>the
deals for 6 months then move on? Do you need someone who plans to
be<BR>there for the long-haul and build a business with you?<BR>* Do
you want/need a Pure Salesperson for your organization? Pure<BR>Salespeople
are those ones that can "sell ice to an Eskimo". Pure<BR>Salespeople, by
nature, are NOT engineers (if they were engineers, they were<BR>lousy
engineers). They can't stand and don't see the importance of
technical<BR>details. They don't care about accuracy in anything other than
making sure<BR>their paycheck is as big as possible. A Pure Salesperson is
self-centered<BR>and has ADD about all things that don't smell like money in
their pocket.<BR>This characteristic has upsides and downsides. Depending on
the depth,<BR>direction, and maturity of the rest of your organization, the
upsides may<BR>outweigh the downsides. In some companies, you might want
that shark and<BR>have the back-end to deal with the headaches they cause.
Personally, I don't<BR>like these types, but I give them their due. Think
about it like this: We<BR>all hate lawyers, but when the sh#$ hits the fan,
we want the most ruthless<BR>scumbag possible on our team and we pay for it.
Pure Salespeople are that<BR>ruthless scumbag. Do you want that same level
of ruthlessness on your team<BR>every day? Do you have the back-end to deal
with the fallout?<BR>* There is no "magic number" that salespeople
should be paid. You need to<BR>evaluate their role in your company against
your margins and revenues. Be<BR>sure to consider your other marketing... On
the whole, your gross "sales<BR>costs" include your "other" marketing costs.
The salesperson is not the only<BR>one selling your company. Your entire
company sells your company...<BR>* If the salesperson's compensation
is largely commission-based, it is<BR>common for them to push for you to pay
for as much marketing as possible.<BR>Set your marketing budget and don't
budge it. When they hit you up to<BR>sponsor another Home Show or Trade
Show, offer to co-op the cost with them<BR>(including any hourly staff that
you have to pay to be there). You can come<BR>up with a spiff program that
reimburses them based on profitability of leads<BR>that come from the show.
What's good for the goose is good for the gander.<BR>* I am for
accountability. Listen to the rest of your team. If a pattern of<BR>laziness
or inaccuracy by the salesperson starts showing up, nip it in the<BR>bud. Be
direct. If your design team is constantly having to re-do stuff
that<BR>should be done by the salesperson, start docking their pay to
compensate for<BR>the extra design costs. Same with admin. Hopefully your
design team is<BR>catching stuff before you roll crews with tools and glass.
I wouldn't allow<BR>more than one case of stuff not fitting before I start
taking away<BR>paychecks. Just 'cause you're getting paid on commission
doesn't mean you<BR>get to be a forkup.<BR>* If your sales comp plan
isn't directly tied to profitability, start<BR>newbies out cheap. Set the
target compensation and ramp their pay based on<BR>performance. The goal is
to get them up to speed and effectiveness as soon<BR>as possible. If, for
example, they are going to be expected to do survey<BR>work and initial
design/configuration, YOU are going to have to provide<BR>training and
support necessary to get them to the point where they can<BR>actually
achieve that in a manner consistent with your standards. Depending<BR>on too
many factors to count, this can take quite a bit of time and<BR>everybody
might starve meanwhile. Figure out if it's gonna work or not<BR>earlier
rather than later.<BR>* Sometimes the right person might require
modifying the position. For<BR>example, you might find that the "right"
person has zero technical ability<BR>but has other qualities that make them
the right person. Maybe it's your<BR>wife or girlfriend or out-of-work
brother-in-law. This might mean you have<BR>to send a separate survey/design
person to every site prior to signing<BR>papers. Under most models, this
person would not deserve the same level of<BR>compensation that someone who
could do all the survey and preliminary design<BR>work would. Adjust the job
description and compensation accordingly.<BR>* Your salesperson has
the potential to cost you more money than anyone<BR>else in the
company.<BR>* Your salesperson has the potential to make you more
money than anyone<BR>else in the company.<BR>* Matt's preferred
structure for system sales: Modest base salary + %<BR>project margin +
annual bonus based on company performance.<BR>* Matt's preferred
structure for PPA sales: Modest base salary + % actual<BR>annual operational
margin paid 1x per year for Years 1-5.<BR><BR>Pray for Sun & Super
Salespeople!<BR><BR>Matt
Lafferty<BR><BR><BR>_______________________________________________<BR>Sponsored
by Home Power magazine<BR>Re-Markets mailing list<BR><A
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target=_blank>http://lists.re-wrenches.org/listinfo.cgi/re-markets-re-wrenches.org</A><BR><BR></BLOCKQUOTE></DIV><BR>
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