How to easily set up a sales commission program that works!

The bottom line is the bottom line in retail.

A successful retail store or restaurant is dependent on selling so it’s imperative that you create a sales culture. I’m a firm believer sales people should be rewarded for selling. Hire people who are motivated to reap the financial rewards of meeting and exceeding goals. I have found quite a bit of resistance about this from owners who think a commission-based program will encourage staff to become too aggressive and competitive. They fear it will create an unpleasant experience for customers.

Let’s be clear. You are not training staff to be used car salesmen. You are training them to sell which, quite simply, is providing the information a customer needs to make a buying decision. Selling is inviting prospects to participate in the opportunity you bring to the table. With proper training and a solid reward system, you can cultivate a great sales team as well as a great customer experience.

So whether you decide to implement a commission program or a monthly bonus program, create a reward system that will help you meet your goals. Rewards can be in the form of gift cards, merchandise or commissions. Just be sure the reward is commensurate with your product or service and the level of sales skill required.

Setting up a commission program

I have seen all types of commission programs in the retail world. They sometimes pay on meeting daily goals and sometimes just pay – regardless of whether an end goal is met. Neither of these structures help elevate sales levels and definitely don’t inspire employees. Creating a goal and commission plan takes a bit of creativity and strategic thinking. There are three key elements for setting up a successful incentive program:

• 1. Create monthly goals. I don’t believe in daily goals. They are almost impossible to meet and a good rain storm could wipe out an employee’s bonus potential and discourage them.

• 2. Be sure the total of the employee goals is more than the actual monthly revenue number you want to achieve.

• 3. Offer larger incentives for exceeding goals. How does this play out? Let’s use this scenario for the month of April. The commissions used in these scenarios are just an example. The actual commission percentages you will pay should be based on your own store profitability and employee status.

Assume
Your sales staff includes: 1 full time manager and 2 part time sales people

Last year’s April revenues:
Manager’s sales $28,000
Part time staff #1 $ 5,000
Part time staff #2 $ 7,000
Total – last April $40,000
Note: Just count employee sales in this number – don’t count your own.

Your goal for this April $48,000 (20% increase)
This year’s April goals by employee:
Manager’s sales $35,000
Part time staff #1 $ 6,250
Part time staff #2 $ 8,750
Total sales goals $50,000
The total of employee goals exceeds the actual April revenue goal of $48,000.

Commission Structure
Manager
2% on all sales up to goal ($35,000)
5% on sales of $35,001 and above
$250 for team hitting store sales goal of $50,000

Sales staff
$100 bonus each for meeting sales goal
An additional $100 each if they exceed goal by 20% or more

In this scenario you are paying the manager a regular commission on what she sells, and more importantly, incentivizing her to exceed her goal AND to motivate the staff to meet and exceed their goals as well.

Let’s say the total sales for this April play out like this:

Scenario 1 Scenario 2

Manager sales $32,500 $37,500
Staff # 1 $ 3,500 $ 6,000
Staff #2 $ 8,750 $10,500
$44,750 $54,000

Scenario 1
Total revenue is less than the actual revenue goal of $48,000 but still represents an 8 percent increase over last April.

The manager would earn 2% X $32,500 = $650
Staff # 1 no bonus
Staff # 2 $100
Total commissions and bonuses paid $750

Scenario 2
Total revenue exceeds the actual revenue goal of $48,000 and the employee revenue goal of $50,000.

The manager would earn $1200
2% X 35,000 = $700
5% of $4999= $250
Bonus for achieving store goal $250
Staff # 1 no bonus
Staff # 2 $200
Total commissions and bonuses paid $1,475

In scenario 2, you have paid $1,475 in commission to achieve a 35 percent increase in sales ($14,000) over last year. That’s quite a deal! Plus, your employees feel more empowered because they had the opportunity to pad their paychecks!

Sales contests
You can choose to deliver rewards via a monthly contest, structured in a number of ways:

• Reward only the highest achieving employee
• Reward each individual who achieves their goal
• Reward each individual who achieves their goal ONLY if the overall monthly revenue goal is made

It’s important to create a spirit of team competition to make this work. Track each employee’s progress on a chart and be the head cheerleader in acknowledging progress on a regular basis. Be sure your contests or incentives are in line with your goals. For example, if you run a hair salon and have made a deal with a particular manufacturer for special pricing on shampoo, the contests should center around the sales of that shampoo. Alternatively, if you have an underperforming item, create an incentive around it.

Commission and rewards aren’t simply a way to pay staff if they happen to meet goals. They are tools to insure that your staff’s performance helps you achieve your goals. As you begin a reward program, give it a few months to let everyone get used to the system, get the proper training and work out the kinks. Let them know you are serious and they will we judged on their sales performance monthly. Once you pull the trigger, meet with each staff member at the end of every month to review performance and assign goals for the next month. Conduct a debrief session. Don’t focus on what went wrong. Ask them what they think they did correctly and what they might have done differently or better. These are great learning opportunities.

Pay special attention to those employees who do not meet their goals and provide additional training to help them. If an employee is consistently underachieving (let’s say 3 months running) and your efforts and training have not paid off, it’s time to find someone new.

Until next time remember,
You can do this!
Angel