Fair Pay for a Sales Rep

This thread on sales force compensation has some ballpark numbers attached. August 13, 2007

I'm in the process of hiring my first sales rep. We manufacture high end kitchen cabinets and related residential built-ins. Most (75%) of our work comes from designers, architects and high end builders. Most of these customers are so well qualified that the sales rep will act more as a facilitator/designer than a sales rep. My partner and I together sell 1.3 million Cdn. and are overloaded. I'm hoping that the new person will handle between $350,000 to $550,000 the first year. My question, any suggestions for pay scale?

Forum Responses
(Business and Management Forum)
From contributor C:
You don't have to pay a lot to get someone to sell that much, which really isn't a lot. Find someone that is presentable, has a good attitude, and they should have no problem. I am in a metropolitan area and have had $14/hr people do very well selling cabinet doors, but it is a good idea to provide a bonus based on invoiced work, not booked work. It doesn't do any good to sell what you cannot make. A bonus that amounts to an average of 8% of their base pay would be enough to motivate the right person.

From contributor G:
$14 per hour might be okay, but if the right person walked in the door and wants $20, consider it. How much is it going to cost you for training or someone that specs a job out of oak, and it was sold as maple, because they are not organized? Since you do high end, I would imagine you don't want someone too green. A shop down the road from me pays around 40k including bonus.

From the original questioner:
Thanks for the replies. I don't think I want a $14/hr guy selling a $50000 kitchen. But I'm reassured by contributor G's comment. I was planning on about 40000 commission plus incentives. When I saw the $14/hr, I wondered if I was giving away the farm.

From contributor C:
In reference to my $14/hr comment, I would expect the complexity of cabinets to pay a little more than doors alone. Plus add in inflation, so I would be at $15, you maybe at $17. With overtime and incentives, that would be close to what you are looking at. I am real big on developing people, so when they are making $15, it is far more than they have ever made before and are very appreciative of it. If they were making that much 15 years ago, it is hard for them to get as motivated.

From the original questioner:
Thanks for the comments. I guess our regional pay rates are different. In my area, $14/hr gets you a medium to low skill woodworker, whereas I need someone who is comfortable with and presentable to people who are very well-off and sometimes a bit stuffy, if you know what I mean. It may be interesting to compare wage scales in different areas around the US and Canada.

From contributor C:
If that is medium to low skill, what is your entry level/no skill? Mine is $9/hr.

From the original questioner:
Yes, mine too, but I think that this position, with the responsibility of designing and pricing custom work, measuring, and dealing with clients, is more than a $14/hr job. I feel that this is more in line with a high skilled individual.

From contributor J:
This type of query crops up frequently on this forum, and it often seems that people are looking for actual numbers. If I was hiring a skilled salesperson, I would be thinking that if they were bringing me all the work I wanted, sold at the right price, and if they dealt with or prevented any problems from arising, then I would be happy to pay them a lot. That's the usual thing with salesmen - if they are earning you plenty of money, then they get paid plenty of money, certainly a lot more than the numbers that have been talked about so far.

If, on the other hand, they are not having to generate their own leads, and the jobs are more or less falling into their laps, and all they have to do is design, and make sure the jobs go smoothly, then they are not acting as salesmen.

From the original questioner:
Thanks for the input. I tend to agree with your logic. My reason for the post was that I had no idea what was a reasonable salary. I would rather start in the right range than insult a potentially good employee or give too much. I think I'm in the right range now, and have a very good prospect for this position. I've given her an offer, I just have to see what her reply is.

From contributor C:
I checked again, and the person I was thinking about on my payroll now makes closer to $16, selling doors. Yes, selling and designing cabinets would demand more. But I wonder about the comment about paying a lot to someone who brings in the work. I hope you don't mean that salesman should be winning your lottery. I just don't see why you should pay someone more than you have to. I have a lot of people working for me, and if I start paying people more than I have to (market conditions, and to keep their attitude good), I could end up just breaking even.

Just for an example, about 9 years ago when we ran out of work, I sent one of our $8.50/hr employees out to sell because I knew he would make a good enough impression, and sure enough, the customer he snagged was worth almost a million in total sales. I paid some percent of sales to him for about a year and a half, but had to stop because I wasn't making money at the time, but now he has been with me for over 11 years and makes twice what he was then. I wasn't trying to take advantage of him, but we were out of work, so it was that or send him home. That sale kept him and others busy in the shop for a long time. It was still several years before I started making money, though. Most people don't realize how difficult it is to make doors efficiently for a broad customer base as opposed to just making them for your own cabinets.

From contributor J:
I've not made myself sufficiently clear. The situation I am talking about is where your salesman is making you a lot of money. In order to have this situation continue, you will need to pay your salesman a decent share of that money. Not all off it, just a decent share.

The situation you are talking about is where your salesman is not making you a lot of money. Some, but not a lot. It also sounds like you are selling to other businesses. It is obviously more difficult to make extra profit when selling to repeat customers who take a keen interest in your and your competitors' prices. In a situation like that, where your prices are competitive, you don't really need what I think of as a salesman, what you need is an order taker and he/she should be paid accordingly.

From contributor R:
Are you after $350k or $550k? I think you're on the right track. I'd expect to pay someone selling that much a base rate of around $35k a year. Then, if they sell 350-450, a bonus of $1,000. 500k+ a bonus of $5k. 600k+ a bonus of say $10k. You get the idea.

What you want is someone decent, to pay them on a decent base wage, then load up their bonuses. Make that how they top their wage up from decent to very good. A decent salesperson should want that anyway - a good salesperson will join you on that kind of scheme, then probably request a lower base, higher bonus down the track.

From contributor D:
I have two salespeople - one inside, one outside. I based their pay on gross profit and they each have annual sales targets of 500k. If they do things well this will earn them 50k. If a guy is hungry, he can exceed this easily.

From contributor C:
Contributor J, it wasn't anybody's fault but mine that I wasn't making money. And my repeat business is almost unconcerned with my competitors' pricing. It is the new business that is concerned with pricing. After they use us for awhile, price is no longer such an issue - because we are that good. Part of my problem early on was simply not charging enough, the other problem was we weren't big enough (economies of scale) and the high debt load of growing the business rapidly.

My salespeople now make me lots of money because they are true stars with customers and they have the balls to charge more than I would, and they don't even get a commission to do so, they just see making the company money as part of their job.