Win/Win Sales Compensation - Tim Mclellan

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Tim Mclellan, a partner for B2B CFO talks about sales compensation plans for your business.

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Win/Win Sales Compensation - Tim Mclellan

  1. 1. Win / Win Compensation Strategies Presented by: Tim McLellan, CPA B2B CFO®
  2. 2. Salespersons’ Duties• Identify Potenial Customers• Identify Potential Projects• Calculate Estimates from Plans• Field Measure• Obtain Pricing From Manufacturer• Negotiate Installation Labor
  3. 3. Salepersons’ Duties, Cont.• Create Written Proposal• Order Materials• Manage Project• Schedule Work• Prepare Invoices• Collect Receivables
  4. 4. Types of Sales Comp Plans• 100% Commission• Draw Against Commission• Salary Plus Commission• Salary Plus Bonus• Straight Salary
  5. 5. Pay Based On• Sales Dollars• Gross Margin Dollars (profitability)• Other volume incentive – annual or monthly timely collection
  6. 6. Range of PayCompany: Low Range – 8% of Sales High Range – 12 % of SalesIndividual Cash Compensation: Low - $50,000 High - $200,000
  7. 7. What’s Included In Comp?• Auto allowance• Company Car• T & E Allowance• iPhone• Health insurance – employee or family• 401(k) or other retirement• Vacation / Personal Days• Payroll Taxes / Workers’ Comp
  8. 8. Comp Based on Sales• Company budgets total sales expenses at 10% of sales.• Benefits shown on prior page equal 2% of sales.• Sales Commission rate is 8% of sales.
  9. 9. Comp Plan based on Margin• Usually includes a floor, example - no commission paid on sales less than 10%.• Sometimes includes a ceiling but not always.• Three varieties to a margin based plan: – Fixed Rate – Graduated Scale – Point for Point
  10. 10. Overhead Factor• There is usually an overhead factor of 2 - 4% built into the calculation on a gross margin plan.• Job Runner / Floor Manager allows user to set overhead rate based on Material, Labor or Both.
  11. 11. Fixed Rate PlanSalesperson receives 25% of gross margin on all jobs with a margin > 10%Example calculation: $100,000 Sell price. $20,000 Gross Margin.Commission would be $20,000 x .25 = $5,000
  12. 12. Graduated Scale0% - 10% = no commission10% - 20% = 15% commission20% - 30% = 20% commissionAbove 30% = 30% commission
  13. 13. Point for Point Plan• 10% job earns 10% commission• 11% job earns 11% commission• 12% job earns 12% commission• 30% job earns 30% commission
  14. 14. Monthly Payment Calculation, ex 1• Salesperson is on a $5,000 per month salary or draw.• Salesperson earns $7,000 in commission in March.• Salesperson will receive commission of $2,000 in April commission payroll cycle.
  15. 15. Monthly Payment Calculation, ex 2• Salesperson is on a $5,000 per month salary or draw.• Salesperson earns $4,000 in commission in March.• Salesperson is under draw by $(1,000) so no additional commission is earned, continued on next slide…
  16. 16. Monthly Payment Calculation, ex 2 cont.• Salesperson is $(1,000) in the hole from prior month.• Same draw of $5,000 per month.• Salesperson earns $7,000 in commission in April.• Salesperson will receive commission check of $1,000 in May ($7,000 - $5,000 draw - $1,000 make up from prior month).
  17. 17. Budgeting for GM Plan$2,000,000 average annual sales$400,000 expected gross margin25% average commission rate$100,000 expected compensationDecide on monthly draw amount 60/40, 75/25
  18. 18. Questions? Tim McLellantmclellan@b2bcfo.com 404-915-5539 www.b2bcfo.com

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