Sales incentives, short term and long term.

[JTSpear]

We are a smaller company (4 full timers including owner) with the owner doing 95% of the sales. He is starting to try retire soon and is trying to get us, mainly me, to take over sales and open up a new area. I am curious what other companies are doing to get guys to step up to doing sales.

Right now the only incentive is a 5% commission on sales which frankly doesn't make me want to get out there and sell a whole lot. I am allowed to charge a $75 consultation fee when appropriate/at my discretion. This fee then gets put toward the clients bill if they do end up giving us the job and I get the 5% commission rather then the $75 consultation fee. So if the estimate is under $1,500 then I have a built in incentive not to get the job because a 5% commission would be under $75, doesn't work.

We are talking about a year end bonus in addition to my salary bonus which would be based on a percentage of my net sales income.

I would love to hear what smaller companies find works well and what doesn't work. I'm sure this subject has been hammered out before but I can't seem to find it.

 

[ward]

Would the sales commission be all you would get in terms of compensation or do you retain your current base pay (hourly rate) AND get the commission on top of that?

 

[JTSpear]

so the commission would be on top of my hourly rate while I work in the field. All of the time involved with talking to the customer, writing the proposal, billing, etc. would not be paid hourly. The commission would be compensation for my sales time. Right now I work full time in the field and do estimates/ meet customers on my own time, kinda sucks getting home at 8 some nights especially when I won't get paid for that time if I don't make the sale.

 

[IPMArborist]

so the commission would be on top of my hourly rate while I work in the field. All of the time involved with talking to the customer, writing the proposal, billing, etc. would not be paid hourly. The commission would be compensation for my sales time. Right now I work full time in the field and do estimates/ meet customers on my own time, kinda sucks getting home at 8 some nights especially when I won't get paid for that time if I don't make the sale.

5% is pretty low. Most full time sales reps at larger tree companies make $100,000-$200,000. If you can sell $800,000/year then you'd need to be around 15% to be "average." I'd see if you can get your boss to split the profit instead. If you got to keep 40% of the profit, then you'd have incentive to sell quality profitable work, not a bunch of crappy low priced removals. Plus the more money you make, the more money your boss makes. It's a win win.

 

[JTSpear]

Thanks for the input IPM! Without telling too much, our company has never gotten very close to $800,000... I'm not saying its unrealistic but I think we are usually on the high end of the market and that would be one hell of a year for us. I make good money for my area working in the field, and honestly I like working in the field. What kind of incentive program do you think would be appropriate to bring guys like me more into the sales side of things? I guess the question is what does it take to get us guys who love working aloft to come down and sell? What's fair for everyone?

 

[treehumper]

Straight commission would be around 10% and based on gross revenue. Net revenue can be full of hidden costs that conveniently reduce the "net" to zero. There are many a fine actor who got burned by that kind of a deal. You need to look at it as a separate job and therefore any time given to it is going to be covered by the income you'll generate.

What's the sales cycle and closing rate thus the amount of time you'll need to spend in order to generate a reasonable income? What are the typical revenues of the business? If you're expected to open up a new area, what's the potential for that area? Are you provided with warm leads? Will you have to develop leads as well?

I do some sales for the company now and will be doing more in the future while still working in the field.

 

[ward]

Seems like an okay deal since you are not living on sales alone, but also your other work. If you were working for 5% alone, I'd think that was too low for full time sales work. But it sounds like you are able to put in another hour or two a night after work for another hundred or two, not bad.

 

[treehumper]

Ward, don't subsidize the one with the other. They are two separate jobs and must be looked at in terms of two different people doing them. Both would want to be compensated fairly for their contribution not the one subsidizing the other.

 

[ward]

You're right about that, I wouldn't want to be subsidizing work with other work. Sounds like JT you might be new to sales? Maybe the boss is giving you this as a trial and see how you do, a beginner's curve. There's a lot that goes into articulating tree work to clients and learning that takes time. You don't want the 5% number to gel into something permanent, if this is all it is. After 6 months of 5% you ask for 7.5% or so (maybe more!) based on a success rate and a proven ability to profitably quote work.

 

[JTSpear]

Net revenue can be full of hidden costs that conveniently reduce the "net" to zero. There are many a fine actor who got burned by that kind of a deal.

We talked about this, in fact, my boss brought up the fact that he could easily add in expenses that would make just about any job a zero net. He said he wouldn't do that to me, while i trust his word, this whole deal is going to have to be in writing...

What's the sales cycle and closing rate thus the amount of time you'll need to spend in order to generate a reasonable income? What are the typical revenues of the business? If you're expected to open up a new area, what's the potential for that area? Are you provided with warm leads? Will you have to develop leads as well?

We are small enough that we don't track our sales cycle and closing rate very closely, it's more of a get the call/email, get back to them, set up an appointment, send the proposal, and go from there. As far as our total revenue, I am not sure that I am allowed to say, so I won't... The area I am working on opening, I have a sales history in(self employed) and it has a lot of potential, lots of competition, but a lot of potential. We have opened our online marketing to the area that I am trying to expand into, which had lead to calls and some work however, much of my sales are small sales from customers I had when I was running my own small tree service. So warm leads go to me based on location and I generate leads as well.

I hope this is helpful, I can see you are a much more trained sales person then I, so your help is much appreciated! keep it coming!

 

[JTSpear]

Seems like an okay deal since you are not living on sales alone, but also your other work. If you were working for 5% alone, I'd think that was too low for full time sales work. But it sounds like you are able to put in another hour or two a night after work for another hundred or two, not bad.

It's true these 2 things shouldn't be married, I don't do sales on the clock, so the rate should't be tied to it. We are however talking about giving me an afternoon a week or so to do sales so that I don't have to work super late 3 nights a week or whatever, but I can't afford to not do field work and work on commission instead while most of the sales I do are from my old customers from being self employed and are generally very small jobs. The big hold up to me in all of this is that if I meet someone to look at $500 of work, it doesn't necessarily take less time then if it were $5000 worth of work but it isn't worth nearly as much money to me. Do I just need to screen potential clients better?

 

[JTSpear]

There's a lot that goes into articulating tree work to clients and learning that takes time. You don't want the 5% number to gel into something permanent, if this is all it is. After 6 months of 5% you ask for 7.5% or so (maybe more!) based on a success rate and a proven ability to profitably quote work.

I am good at talking to people about their trees and have plenty of experience with that side of sales. I find the hard part is getting the price we need to charge, I guess that's the closing side of it. Mostly I just don't like office work, I'm a work with my hands kinda guy. but I know I can't climb forever... I have been doing some sales since I started but It's occasional and it pales in comparison to the owner.

 

[treehumper]

Manage your prospects don't let them manage you. Set specific blocks of time during the week that you'll make appts. Suggest time to meet within those blocks with an eye to set up appts where clients are close to each other. instead of leaving it entirely up to the prospect. This way you can better structure those small calls to be clustered together geographically or pair a small bid with a larger one to offset the cost (you know there is a cost to your time, right!?). Watch for other work that may be obvious to you but not to the client on those small jobs. I often converted small jobs into bigger money makers when I showed up to do the work and noticed other stuff that needed doing.

Even when the schedule is completely blank don't tell the prospect that! This way you're better able to structure your time.

Spend more time listening and looking. You'll learn much more about your prospects and be able to better sell the work the need vs. the work they think needs to be done. You can then structure a proposal that meets their budget and cash flow.

We have to begin to understand that it is knowledge we are selling backed by the skills and tools to do the work. We are not selling semi-skilled labor that anybody with a chainsaw and a pick up can do.

 

[TimBr]

Seems like an okay deal since you are not living on sales alone, but also your other work. If you were working for 5% alone, I'd think that was too low for full time sales work. But it sounds like you are able to put in another hour or two a night after work for another hundred or two, not bad.

No guarantee at all that the guy trying to sell will get paid a nickel. Coming up dry a few times after already working a full day as a climber would really bite. The payoff needs to be big enough to cause a guy to put up with the failed sales attempts long enough to get to the successful ones.

Having a guy working on commission means that the company has to charge more for the service in order to pay for the sales guy, it seems to me. If you just pay a higher commission, but don't raise prices, it puts pressure on the crew to cut corners to meet an impossible time estimate in order to make a profit. The money for the reasonable commission has to come from somewhere, it seems to me.

This is all just my off the cuff, ignorant opinion, based on what I see as logic. I have no sales experience, myself.

Tim

 

[treehumper]

You're right to an extent. There has always been a cost but most don't figure it in so when the time comes to have a dedicated sales rep they need to increase prices to cover the expense. If you're sales person isn't selling the job right then you'll have a hard time covering those costs.

It's up to the crew not to be pressured into cutting corners that compromise safety and increase the risk of property damage as well.

 

[treehead32]

Thanks for the input IPM! Without telling too much, our company has never gotten very close to $800,000... I'm not saying its unrealistic but I think we are usually on the high end of the market and that would be one hell of a year for us. I make good money for my area working in the field, and honestly I like working in the field. What kind of incentive program do you think would be appropriate to bring guys like me more into the sales side of things? I guess the question is what does it take to get us guys who love working aloft to come down and sell? What's fair for everyone?

We are also 4 full time (including owner) plus 2 in the office. There is no easy answer to this question...the most important thing I have learned over the last few years is what works for my competitor, works for them and usually does not work for me. Honestly, if someone compares my small business to a large company again this year, I may just lose it!

It sounds like your company has one crew. YOU set the production for the day and realistically set the gross revenue for the company. Larger companies (one out here has 46 crews) can afford to have Crew A doing $600 a day for an 8hr day while Crew B, C, D, E do $1,500.00 and Crew F, G, H do $1,900.00 because one crew can help offset another crew. With one crew companies, this mindset is not sustainable because there is nothing else to cover lost revenue if the only crew can not make it happen (unless you have PHC or a part time stump grinder employee.)

At some point in their career, most climbers dream of moving onto sales full time. Its the light at the end of the tunnel for some. I have seen some positive things happen once our foreman was doing estimates part time. Treehumper is right. "Manage the prospects, don't let them manage you." Depending on how busy you are with production and sales you will have to adjust this as necessary.

We kept our foreman on hourly pay for estimates. Which means they would do estimates from 8am-5pm, usually about 10 a day 9face to face with homeowner.) Then they would receive a 5% commission on jobs they sold once the job was completed and the customer paid. It was a win win because his pay was the same and he had no lost revenue. 5% commission felt like a bonus once they received it because they still got their hourly pay during the estimates, during production and the company could afford the 5%. Paying hourly also removed the possibility of "high pressure" sales to close a job or underbidding to get the customer to sign off. If you underbid a job, guess who pays for it? You do, since you are the one performing the work at a later date. Yes, the company pays too if revenue is lower because the job is taking longer than the price point...but that "Oh shit" moment when you show up to a $1000 removal that should have been $1600 is a punch to the gut. Some companies do a lower hourly rate when estimate. Rather than $25 an hour like they do for climbing, they do $15 an hour plus 5% commission. We kept ours the same as their climbing pay.

I noticed a huge difference in attitude from climbers once they did some sales. I no longer heard "you underbid this or it should have been this $xxx." There was also a clear understanding of why it was important to go exactly off the work order and not stray from what was originally proposed to the customer (unless necessary due to safety or condition, etc). Once you are the person in front of the customer, you realize just how difficult it can be to sell a tree for $2000 (respect for prices) or why your $800 trimming on a tree is different or better than the $400 price the fly by night company just bid (importance of sticking to the bid when performing and not dropping your $$ to close a bid.)

Set aside a set time to have appointments. (Maybe one day a week if possible) - then schedule efficiently for that day. Our guys never liked production in the morning, then estimate in the afternoon. Its a different mentality for both jobs - so consider that! In order for some type of commission to work you will definitely need to set up a system that shows your closing rate and ad source. If you consider a hourly pay plus commission of closed bids, is there stump grinding or phc the rest of the crew can do those days to help offset the cost of this?

You are in a unique position, being the first in his company to do this. With honest communication and feedback, it can be a win win for both you, the company and customers. After all, you are performing the work for homeowners and thats peace of mind for them and you can charge slightly more for that. Joe Joe Smith isnt randomly showing up to the property to trim something that someone else bid.

Last note - every company is different. Only you and the owner know what the overhead is. Do they own $$ on equipment still? Is it paid off? Evaluating the overhead will help determine what is feasible.

GOOD LUCK!

 

[IPMArborist]

We are also 4 full time (including owner) plus 2 in the office. There is no easy answer to this question...the most important thing I have learned over the last few years is what works for my competitor, works for them and usually does not work for me. Honestly, if someone compares my small business to a large company again this year, I may just lose it!

It sounds like your company has one crew. YOU set the production for the day and realistically set the gross revenue for the company. Larger companies (one out here has 46 crews) can afford to have Crew A doing $600 a day for an 8hr day while Crew B, C, D, E do $1,500.00 and Crew F, G, H do $1,900.00 because one crew can help offset another crew. With one crew companies, this mindset is not sustainable because there is nothing else to cover lost revenue if the only crew can not make it happen (unless you have PHC or a part time stump grinder employee.)

At some point in their career, most climbers dream of moving onto sales full time. Its the light at the end of the tunnel for some. I have seen some positive things happen once our foreman was doing estimates part time. Treehumper is right. "Manage the prospects, don't let them manage you." Depending on how busy you are with production and sales you will have to adjust this as necessary.

We kept our foreman on hourly pay for estimates. Which means they would do estimates from 8am-5pm, usually about 10 a day 9face to face with homeowner.) Then they would receive a 5% commission on jobs they sold once the job was completed and the customer paid. It was a win win because his pay was the same and he had no lost revenue. 5% commission felt like a bonus once they received it because they still got their hourly pay during the estimates, during production and the company could afford the 5%. Paying hourly also removed the possibility of "high pressure" sales to close a job or underbidding to get the customer to sign off. If you underbid a job, guess who pays for it? You do, since you are the one performing the work at a later date. Yes, the company pays too if revenue is lower because the job is taking longer than the price point...but that "Oh shit" moment when you show up to a $1000 removal that should have been $1600 is a punch to the gut. Some companies do a lower hourly rate when estimate. Rather than $25 an hour like they do for climbing, they do $15 an hour plus 5% commission. We kept ours the same as their climbing pay.

I noticed a huge difference in attitude from climbers once they did some sales. I no longer heard "you underbid this or it should have been this $xxx." There was also a clear understanding of why it was important to go exactly off the work order and not stray from what was originally proposed to the customer (unless necessary due to safety or condition, etc). Once you are the person in front of the customer, you realize just how difficult it can be to sell a tree for $2000 (respect for prices) or why your $800 trimming on a tree is different or better than the $400 price the fly by night company just bid (importance of sticking to the bid when performing and not dropping your $$ to close a bid.)

Set aside a set time to have appointments. (Maybe one day a week if possible) - then schedule efficiently for that day. Our guys never liked production in the morning, then estimate in the afternoon. Its a different mentality for both jobs - so consider that! In order for some type of commission to work you will definitely need to set up a system that shows your closing rate and ad source. If you consider a hourly pay plus commission of closed bids, is there stump grinding or phc the rest of the crew can do those days to help offset the cost of this?

You are in a unique position, being the first in his company to do this. With honest communication and feedback, it can be a win win for both you, the company and customers. After all, you are performing the work for homeowners and thats peace of mind for them and you can charge slightly more for that. Joe Joe Smith isnt randomly showing up to the property to trim something that someone else bid.

Last note - every company is different. Only you and the owner know what the overhead is. Do they own $$ on equipment still? Is it paid off? Evaluating the overhead will help determine what is feasible.

GOOD LUCK!

TreeHead, you bring up some good points. Each business IS different. But I do think there is something to be said from learning from other companies, both large AND small. The large companies are large for a reason...in general they usually have superior business practices and models. That's not to say they are superior in general. Or that they are all the same. Arguments could be made that they have lots of corporate bureaucracy BS, politics, inefficiencies, and lack a local feel and "service" of a small company.

I've worked for small and large companies several different regions with different sorts of clientele. A common theme is that majority of tree care companies underprice their work, some significantly so. For example most other tree companies in my area bid work for a 4 man crew for $1800-$2600/day. I consistently get $1800-$2400/day for a 2 man climbing crew. Now, I could make the argument that my crew was more professional or better and that it warrants some sort of premium, but the fact is that these other guys are leaving tons of money on the table. The fact that we're debating whether a 5, 10, or 15% commission rate is appropriate is part of the problem. Consider a "$1,000" job: 5% commission would be $50. A 20% commission would be $200. Why not just charge $1200 for the job and everyone makes the money they wanted to make, owner included. If the client will spend $1,000, then they'll likely spend $1200.

JTSpear, I can say that generally part time sales at larger companies does not work out. The expected sales regime and above referenced BS combined with ALSO climbing 30-40 hours a week usually doesn't pan out. That said, you are probably looking at doing something way more laid back and it might be a gradual transition to full time sales. All I'm saying is that it does make sense to take a page from the big boys playbook and pay yourself well for your time doing sales. Remember the sale doesn't end with a signature on a piece of paper, you have follow up, managing the crew, dealing with pissed off customers (hopefully not too much!). Whether your paid hourly or commission, I would say you'd want to be making atleast twice as much per hour as you do climbing.

I'm not sure that this refers to you but TreeHead mentioned that many climbers look forward to a life a sales as a light at the end of the tunnel of sorts. This is a structural problem in our industry that I think there may be better solutions for. Sales can be very stressful and isn't for everyone. Most arborists become arborists because they like being outside, working with their hands, and learning a craft. Driving around in a sales car pushing a pencil usually doesn't satisfy these desires. As an industry we should start to think of alternatives for field arborists who may want to phase out of climbing. Whether its training, PHC, or light duty work, I think we need to figure it out. Arboriculture is a great profession, and we have many great "craftsmen" in our industry. Few people want to climb and slug out removals at 65, but there needs to be some other alternatives so we don't have a industry revolving door when people turn 40. Just my two cents.....

 

[treehumper]

Good points IPM... There are all sorts of career paths for climbers, from supervision, management, sales, operations, PHC, etc.. These are individual choices based on the additional skills and aptitude demonstrated. The mistake the industry makes is not having a more refined approach to career development. This is where larger organizations have an edge over small companies, they can internalize this process whereas small co's have limitations as most don't have the business acumen that enables growth.

 

[JTSpear]

Why not just charge $1200 for the job and everyone makes the money they wanted to make, owner included. If the client will spend $1,000, then they'll likely spend $1200.

I have done this in the past where I just add in what I want to get paid for my sales time. I find that it works on paper but after all is said and done the boss sees it more like that should just be extra money for the company and that we need some of those jobs to help out the bottom line. Like we were talking about before, it is easy to find expenses that can make a job look like a zero net, even when extra money is put into the price.

 

[TimBr]

I have done this in the past where I just add in what I want to get paid for my sales time. I find that it works on paper but after all is said and done the boss sees it more like that should just be extra money for the company and that we need some of those jobs to help out the bottom line. Like we were talking about before, it is easy to find expenses that can make a job look like a zero net, even when extra money is put into the price.

In other words, after you successfully sell a particular job at a particular price point, at a previously agreed upon rate of commission, the boss wants to renege on the promised commission and steal the money from you and take it for himself.

Sorry if I'm talking too bluntly here; messing with sales peoples' commissions is the classic problem that sales people have. He is not even trying to be clever about it.

Usually what happens with really good sales people is that they'll agree to work for a company at a given commission rate. Previous sales people in the same position had dismal sales to their credit, as a matter of routine. So the new guy comes in, uses an entirely different approach, and just blows up previously existing sales records, and does so continuously. People at the top see this guy getting paid enormous sums of money, probably even more than they get paid, and it really pisses them off. So the first thing they think of doing is to cut the rate of commission they'd previously agreed to pay the guy. Or they take away a sales territory that he's got all slicked up and selling like gangbusters, and give it to one of their buddies. Anything to keep this ass-kicking saleman from making irritatingly large amounts of money.

What they don't understand is that for this sales guy to be making irritatingly large amounts of money, the company also has to be making huge amounts of money, too. It is communist thinking that is the problem. They end up doing everything they can to remove all of the incentive to sell products or services from the gunslinger they hired in the first place to do just that. They in effect kill the goose that laid the golden egg.

Your boss is not even smart enough to give you the money he's already agreed upon for the deals you've already done, and then next week announce a change in the commission structure for any future sales going forward. He just steals the money from you right now, no excuses. At least, that's the way I'm reading the situation you're describing.

To me, (and I know this sounds really harsh, coming from a guy who's not a pro) it means your boss is a really stupid, shortsighted individual. He deserves to have you give up entirely on the whole idea of being a sales rep for the company.

Treehead32, on the other hand, seems like the dream boss from a parallel universe, or something. To be willing to pay climbers their full rate of pay while they are selling, plus commission on top of it when successful, is just incredible. His approach ensures the security of the earnings of the climbers, and also gives them insight into just how hard it really is to sell, and the consequences of selling services too cheaply.

I think you should absolutely insist on being paid all of the money your boss owes you for your previously earned commissions. Then ask him if he doesn't think it's fair, what rate of commission would be fair? Then when he tries to cut your commission rate in half, you tell him that that is not enough compensation to get you to even try to do sales, thanks anyway, I think I'll just stick to the climbing.

It is no wonder he's the one responsible for most of the sales; he steals from anyone else who tries.

Apologies for the rant.

Tim