Hello all!! I just started as a salesman selling roofs. My commission structure is 10% off the top. There are basically no company leads so it’s going to be self generated leads. Is this a standard starting commission for no company leads? I’m new to roofing but have had 15 years in sales. I know I’ll do well but I’m curious as to how this commission structure stacks up. Thanks in advance for your answers!!
That’s reasonable. I’d say the most common commission structure in roofing sales is a 10/50/50 profit split. Where are you located? Is this for retail or insurance sales?
There are several things that may have to be considered in designing a commission structure. Most beginners will receive a 10% commission until they prove their ability. That ability ensures that the profit margin on sales is 30%, so you are essentially receiving 1/3 of the profit.
Most owners want to see you can produce this at a minimum, but after you establish sales that consistently produce a 35% or better profit margin, then you could approach the owner and ask for 1/3 of the profit. Your argument would be that you are a great producer exceeding the normal profit margin. Also keep in mind that if your sales consistently produce a 25% to 28% profit, an owner may just reduce your commissions by keeping the first 20% for himself and only paying you the remainder as an incentive to keep your profit margins up and not give a way the farm just to get a sale.
The only exception I have seen to this is when you are negotiating a large contract, something over 500 squares. Then you may want to talk to the owner about 1/3 of the profit no matter what, if it guarantees a sale. My first such sale was a $2,100,000 sale with a 20% projected profit margin, 20% was $420,000, well worth dropping profit margin to get the job. Remember 10% of a no sale is always $0.00, but some percentage of a properly sold job will put money in your pocket.
The best advice I can give you is to not worry about the commission rate. Worry about making the sales, because without sales, you won’t get a commission and probably not have a job very long.
10% is a fair margin. We pay based off total the price per square. We have windows that result in higher percentages for higher prices per square (higher PPS means more profit and more commission). We then pay the percentage off the total project price. This saves us from calculating the profit on every job and wasting time and energy on an inefficient system. Plus the sales reps know the total price and can easily calculate their commission with no fear of us inflating costs to lower the shown profit to pay less commission. It’s a full disclosure system and very quick and easy, allowing everyone to produce more and make more money.
Wookie, are you saying you pay 10% of the selling price regardless of gross profit that is yielded at end of job? If not, how do you handle the possibility of a low ball sale price just so salesperson can get one sold and collect a commission? (Sorry if I missed that somewhere)
BlockquoteThere are several things that may have to be considered in designing a commission structure. Most beginners will receive a 10% commission until they prove their ability. That ability ensures that the profit margin on sales is 30%
30%? If you’re only making 30% in this business, you need to hire some estimators and supplementers instead of sales people.
That’s why 10% flat rate doesn’t make much sense, at least to me. The other thing though, 10/50/50 with one company isn’t the same as it is with another. If the company you’re working for only average 30% GP, you’d be luck y to average 10% commission. Our Reps average 14% to 17% commissions. So if you’re looking at a Sales Rep position, you should be evaluating how well run the company you’re going to work for is.
RickB1, first of all, I want hitters. Weak salesmen will not survive in my company. I also avoid this by setting a minimum price per square. Anything below this receives a 3% commission. Nobody wants that. I also heavily invest and train my guys really well to be good at this; I only hire through referrals or in person experiences (sales person at the gym, car dealership, etc.). My average supplement for a claim is around $570 per square and settles for around $536 and that’s company wide. Secondly, if you have a growing business, why would anyone in there right mind spend hours every day auditing every project to ensure every expense for every job is tracked just to pay a commission. You could have been producing income!!! I tried it in the beginning and it was a headache for me and the sales reps. It’s also a nightmare for an accountant!! I’d rather generate a financial statement monthly for my business, cut a commission off the total sales price, and be done with it. The sales reps can also calculate their comission before we ever roof the project and the sales guys don’t have to pay for it when the something out of their control increases costs. It’s just an opportunity for a second sale to have the customer pay for it and they are trained to take advantage of it. Every complaint I’ve heard from the 10/50/50 system is avoided. The sales reps focus on the top line and I can focus on the total bottom line and growing a business. What doesn’t grow dies.
We have zero issue tracking costs in order to calculate commissions. We provide the Sales Reps with access to all that documentation and a spread sheet breakdown of how their commissions were calculated. All that is needed for your accounting anyway, not sure why it would be a headache.
I wish we could hire and retain high quality sales reps for 10%. That would allow us to keep substantially more money.