Drexanne.com: Article
Are you one of the unlucky brokers who, to remain competitive,
has increased your salespeople’s commission so much that you’re
struggling to make a profit?
If you are, you are in good company. Most companies of yesteryear
kept close to half the commission from each sale and paid salespeople
the other half. But those days are long gone. The result is that
in some cases, compensation has swung so far in favor of salespeople
that brokers can’t earn a fair profit.
Smart brokers have reengineered their salespeople’s compensation
to keep that compensation attractive but the overall company profitable.
With that reengineering have also come more commission arrangements
for salespeople to choose from (incremental, retroactive, the
rolling average, a basic plus, 100 percent chargeback). The development
of more alternatives paves the way for compensation customized
to each salesperson.
If you reengineer your compensation plan, you can help protect
your company’s profits by offering plans that start off with high
splits only to salespeople who’ve consistently demonstrated they
can earn enough money for your company to recover its expenses.
For new salespeople or those who haven’t shown they can recoup
their share of your breakeven amount, smaller splits help preserve
your company’s profits by allowing your company to recover more
expenses with each closing.
Here are a few of the unique compensation plans I’ve recently
seen:
That first month’s a doozy. Company A determined its true breakeven amount based on fixed
expenses, including a profit. Each salesperson who reaches a company’s
breakeven amount is considered a fully productive equivalent.
And if it takes the production of two salespeople to bring in
the money you need to break even for one year, you haven’t truly
affiliated two salespeople but rather one fully productive equivalent.
Company A created a program that let salespeople pay their total
annual breakeven expenses in the first month of the fiscal year.
From then on, the company would pay salespeople all the commissions
they earned, less variable expenses of 8 percent of gross income
per unit closed, and charge no other expenses. There were, however,
some limits placed on the use of company resources, such as photocopies
and postage, without charge.
Take a little off the top. Company B wasn’t a franchise, but most of its competitors were.
So it was able to stay competitive by adding a few benefits, such
as increased advertising and more promotional materials, and securing
a profit by charging an “off the top” fee, deducted before the
commission schedule kicked in, on all commissions. The company’s
move hasn’t caused a major problem with salespeople and has dramatically
improved its bottom line.
Don’t mind us. Just recouping some losses. Company C needed to curb its losses, but it couldn’t change its
compensation plan. So it determined its average loss during each
of the past three years and then divided that amount by the average
number of transaction sides closed each year. The company took
that amount, which turned out to be $100, and added it as a fee
on each side closed. Since that change, the company has shown
a profit and hasn’t experienced increased turnover or a loss of
salespeople.
Commission splits were once uncontrollable. But many brokers now
realize that they’re simply company expenses that they must manage
if their company is to be financially successful.
Salesperson Splits Killing Profits?