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Changes to your commission structures can be made
without a mass walkout!Many of you have heard me ramble on before about the need to focus on the
average rate of commission to drive profitability in your business. But what do you
do when you know you need to make changes to your commission structures but it
just seems too hard?Recently I had the pleasure of helping an office review their commission structures
and the financial impact of proposed changes. The exercise proved that changes
can be made without a mass staff walkout.Here are my tips on how to successfully implement changes with your commission
structure:#1 Do your homework!
#2 Break commission structures down into its individual parts
You must know the impact of any proposed changes on your overall average rate of
commission and gross profit margin. You cannot avoid undertaking the detailed
calculations necessary to give you confidence in the proposed changes and make
sure you do not get it wrong.
I consider these to include:
- Commission rates - Inclusive or exclusive of super - Thresholds - Employee versus independent contractor option - Retainers - Consumables allowance #3 Pick your fights
Consider the impact on individuals of the proposed changes. That way you can
prepare for the arguments you will inevitably have with those that may be paying
the price for the required changes.#4 Setup standard structures with performance as the variable
Stop negotiating different agreements for every salesperson. Setup a standard
structure that clearly indicates that improved performance will be the only factor
that will justify a change in commission rates. If a particular salespersons
commission structure is determined only by their expected level of sales, it will limit the
opportunity for confrontation and places the principal in a much stronger
negotiating position. If a salesperson wants a higher rate of commission, give it to
them, on the basis that they meet the minimum performance criteria.#5 Transparency shows you mean it
By illustrating the commission structures available and using it as the basis for all
commission discussions it shows you mean it and are willing to stand by it. With the
client I worked with recently we illustrated the commission structures into a one page
diagram.Click here to see how we
illustrated their new commission structures.
#6 Don’t forget about consumable allowances
More often than not, if you give people a consumables allowance, they will spend
it. If you are too generous it will cost you on the bottom line. One client I worked
with recently increased their net profit margin by almost 3%, just by making changes
to their consumable allowances.#7 Average number of properties to be sold
When setting thresholds, calculate how many average properties need to be sold
each month to achieve the thresholds. I have harped on about this one before, but
it is worthy of repeating!#8 Rome wasn't built in a day - work towards the ideal!
A staged introduction of the changes that slowly introduces the new commission
rates and thresholds reduces the negative impact. In this particular case we
implemented the changes as follows:a. Adjusted consumable allowances
b. Published the new commission rates and thresholds
(including performance expectations)
c. Applied new commission rates and thresholds to all new staff
d. Individual discussions either at review date, or over time, regarding the
salespersons expected performance and the commission structure that will be
applied based on their expected level of performance.#9 One size does not fit all!
Although I have attached a copy of the commission structure this client has
introduced it will not necessarily suit your circumstances. You must consider matters
specific to your own circumstances.#10 To borrow the slogan of Nike ... Just do it!
It is not only in your interest, but the interests of your staff, to make sure you have a
profitable business. As long as you have done your homework and sensibly
implemented the changes, it could have a massive impact on the long-term
profitability of your business.Although changing a commission structure can be an extremely stressful process - it
can be done! The process is a whole lot easier if you have logically worked through
the issues in a systematic way by undertaking the detailed calculations necessary to
support the proposed changes. If you need a hand to do this, I would be more than
happy to help!Regards
JOHN KNIGHT
Bean Thinking About Something Else?
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