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Opinion: Effective Retail Sales Compensation

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OK. Since you read my last article posted to the news section of furninfo.com concerning “Creating a Dynamic Sales Team” you have a better idea how to hire the right people. Not that you didn’t already know how! My intention was just to jog your memory a little and give you a few hints to get you focused. So, what should you do next? Well, it would seem that the natural progression would be to put them through a well thought out sales training program. If that was what you were thinking then you are correct. However, before I remind you of some of the tools I successfully used in my sales training career, I want to focus on one other important decision…compensation! I certainly won’t pretend to have any power over how you decide to pay your “thoroughbreds” for the skills they bring to your store, but I would like to point out a few lessons I have learned working with different compensation, or reward, systems. I have worked with sales teams that were paid a straight salary, those that were paid on straight commission and those that were paid a combination of both. Let’s take a moment to look at the pros and cons of each system of compensation and see if there might be a way to come up with a plan that works for you, the salesperson and also your customers. Having work with a multitude of reward systems I have come to realize that whatever system you develop has to work for everyone involved; you, the salesperson and, equally, the customer. Let’s take the straight salary situation first. A straight salary system of reward solves one of the biggest fears of all furniture salespeople; their meal ticket. Any psychologist will tell you that the first and most important desire of all individuals is to be able to provide for their basic needs: meaning food, shelter and clothing for them and their family. It has been my experience that when a qualified salesperson, or “thoroughbred”, is working in a reward system where they are not certain, or confident, that their basic needs will be met on a weekly or monthly basis they almost always see a potential customer as someone who is holding their rent payment, car payment or health care payment in their hand and “I got to do whatever it takes to get it”! This kind of attitude in your salespeople may bring you more overall sales but it may also put a strain on the integrity of your salespeople. Being concerned with selling enough to provide for basic needs can often cause an adversarial relationship between your customer and your salesperson often resulting in the salesperson promising anything in order to “make the sale”. So, if your salespeople are paid a salary to cover their basic needs your system should result in a higher degree of integrity in your salespeople and many more satisfied customers. Yes, I can hear you experienced business owners out there saying, “Yes, integrity and better customer relationships is important to me but my experience is that salaried salespeople often become lazy once they realize that they get paid the same whether they produce or not. And after all, producing results is what it’s all about!” No disagreement here. You want a team of thoroughbreds who want to win not just one race here and there, but every race. I couldn’t agree more. So let’s look at the second system of compensation… straight commission. This is a system I have worked with and in most of my life and although I personally favor it, this may not be the best choice for you. As I explained in the previous example, salespeople who are not certain that they are going to be able to provide for their basic needs may become desperate and view all sales situations with a bit of hostility. If you were to type this kind of personality you would find that this type of salesperson lacks confidence and possesses a “worker” mentality. The “worker” mentality derives in part from the time in our history when men and women began to leave their farms to work in the factories of a new, industrial, America. In exchange for the freedom of being an entrepreneur (a farmer providing for his or her own needs), they decided it was more “secure” to take on a steady paying job in a factory than to continue to depend on the weather. Today you will find many more people who prefer the security of a steady paycheck than those who will risk the security for a chance at higher earnings. So, when you are hiring salespeople into a system of straight commissions, make certain that their personality type is more “entrepreneurial”, one that is willing to risk the security for a chance at higher earnings. One question will reveal this to you. “Do you prefer to be paid a straight salary or straight commission?” The entrepreneur will choose commission almost every time. Then, there are those furniture companies that pay a combination of both. They pay a salary that is commensurate with the average wage earners in their region of the country and add an additional incentive of a bonus or commission for sales above a certain level. This is a fair system for most furniture salespeople and interior designers. It provides for everyone’s basic needs and rewards the over-achievers. Where this may fall short of creating the kind of “winning” sales team that we all want is that you will have those members of your team that become complacent with their salary and will not put in the extra effort necessary to earn more. Certainly, you can lower the salary and raise commissions in order to provide additional motivation to those on your staff who have become complacent. However, my experience is that if you use a change in compensation as a means to motivate your staff, and any part of the change could be viewed negatively, it will! Now you have a staff with a bad attitude and poor worse results. Sure, you can put a spin on the changes and show them how they will have a greater benefit in the long run. But the fact remains this; if they perceive that the change will result in less money today than yesterday, YOU LOSE! So, what is my recommendation? I like a “combo platter” whenever I can get one. But one with a little different twist than what I have mentioned above. A straight commission compensation system is one that I have found to be used by most of the retail furniture companies that I have consulted with and worked for. However, it does have one drawback that is worthy of your consideration before you take my advice and decide to change your present structure. Indulge me for a moment more so I can create an example for you. You have just finished an interview with a man or woman who has decided on a career change. They have all the qualities you are looking for in a new salesperson. They have a great personality, they know the basics of furniture construction, they understand basic interior design and so on. All the qualities of a true “thoroughbred” are evident. Now you get to the critical question of compensation. Their answer goes something like this: “I certainly see the value of being rewarded for every sale I make and I prefer it. My only hesitation is that I’m coming from a job that provided for my basic needs with a weekly salary and I’m not certain I have saved enough to help me cover my expenses until my sells have reached a high enough level”. This is a dilemma that all business owners who pay straight commission have faced at one time or another. On the one hand you can see that this person will be a valuable contributor to your team and your customers. But you can’t change your system for this person and not change it for your entire sales team. You know the old saying, “Sales people just can’t keep a secret about their compensation package”. So what do you do? You could just let fate rule. Maybe they will take a chance and except the position. Maybe they won’t. Maybe they are the sole source of income for their family and they just can’t put them at risk. So, you win some and you lose some…right! Let me say this, great furniture salespeople are hard to find and harder to keep. They are an essential part of the overall success of everyone’s company. So don’t be like the fisherman who kept throwing back the big fish and keeping the small ones. When asked why he kept doing this he replied, “Well you see, all I got is this here little fryin’ pan and these big ones just don’t fit!” If your frying pan “don’t fit” this fish, get a bigger frying pan! What I suggest you do is tailor a compensation plan that works for this prime candidate, and others like this, without violating the compensation program as a whole. I have seen this work extremely well in a few, highly successful furniture stores. Agree with this candidate to pay them on a straight commission basis, but for the first 6 months you will advance them an amount equal to 90% of the average earned commissions of your sales team. Add to this that you will pay them any commissions earned above the advance. What does this accomplish? First, you are telling this candidate that you believe in their ability to succeed. So much so that you are willing to invest in them. Second, you are helping them transition from a “worker” mentality to one of an “entrepreneur”. Third, you have created a scenario where your customers will get the best service from this salesperson and not be viewed as just their meal ticket. Fourth, you have provided motivation for this person to be more than average since they will receive the additional commissions for their effort. Now, this is not a panacea. It will not suit all retail furniture operations. It may not suit all storeowners. Especially those who would prefer not to risk anything on a new hire and who feel that their success will come from the products they provide and not necessarily the service. But that’s a story for another time. How you choose to compensate your salespeople is your business. Please remember this-Whatever system you decide to use will have a direct effect on the quality of salespeople you can attract and the success you have with your customers. As in all matters that are critical to our lives, choose wisely! Happy fishin’! Jeff York is an expert in sales and customer service training, motivational speaking, recruiting and promotional consulting for the furniture industry. For more information about him or to contact him regarding his services he may be reached at jeffyork@furninfo.com or call him direct at 336.688.0433.

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