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

CASE STUDIES
How properly analyzing metrics helped improve business

New client vs. repeat clients
A beauty salon client did not track their new vs. existing clients or client retention KPI. Once they began tracking and analyzing their numbers, it was clear they were getting plenty of new clients, they just weren’t retaining them. By understanding they had a client retention issue, we were able to implement a two-fold strategy that included customer service training for the stylists to insure greater satisfaction as well as a new customer welcome program that offered new clients discounts for pre-booking their next appointment.

Sales by employee
One clothing store’s sales had been steadily declining over a year’s time. The owner was frequently absent and left the store in the hands of her manager who was also the primary salesperson. In researching the sales decline, she pulled the sales-by-employee report.  Her manager’s sales had gone down 47 percent year-over-year! Frighteningly, the owner didn’t know this. Clearly the manager had become complacent and lost interest. The owner was able to fix the situation by better motivating and training her manager, giving her goals and incentives to sell more and keeping a closer eye on her. The manager’s sales rose 25 percent in just 90 days.  

Sales by category
A pancake house offered an extensive breakfast menu. They knew that pancakes were, by far, their most profitable item; meats generated the least profit. They had never pulled an itemized sales report and upon doing so, made an amazing discovery. Guess what they sold least? Pancakes! The most? Meats! That made it easy for us to create pancake-focused promotions and samplings. We also raised prices on sides of bacon, sausage and ham to keep in line with escalating costs. In no time at all, pancake sales were soaring – as was net profitability.

A clothing store’s sales declined by over 40 percent. The owner had never pulled a sales- by- category report and when she did, it revealed most of the decline was in sales of dresses.  It was like a lightning bolt hit! She had dropped two dress lines the previous quarter and never checked to see how that impacted her sales.

Sales by time of day and day of week
A pizza restaurant was offering a daily lunch discount on weekdays. Upon analyzing the numbers, we found that Thursday and Friday lunches were triple the volume of Monday through Wednesday. There was no need to offer the discount on those days. By eliminating discounts on Thursday and Friday, sales stayed the same but the owner realized increased profitability.

A clothing store, upon tracking sales by time of day, realized the restaurant next door was throwing off great after-dinner traffic. They began opening later to avoid labor costs during virtually non-productive morning hours and staying open later to benefit from restaurant traffic. Sales, of course, went up.

By knowing exactly what and when you’re selling – or not selling – you can create strategies to improve business during non-peak times, know when to run promotions and when to schedule employees – resulting in better service, better profitability and potentially decreased labor costs.

Until next time remember,
You can do this!

Three ways to measure employee performance

Retail sales is just that, sales! Your employees aren’t paid to simply check people out or stock the shelves. Their job is to sell! Same for restaurant servers. So, it’s important to monitor their sales performance.

There’s a bit of controversy about measuring sales by employee. How to you fairly track part time vs. full time and compare with those who work prime shifts vs. off peak times? The point is to benchmark each employee and monitor performance on a regular basis, even if you’re only comparing against themselves.

There are 3 ways to do this effectively. Use the method that best works for your business.

Sales by employee
Average sale by employee
Sales by employee per hour

Start by tracking total sales per employee. Look for dips and peaks in performance and by month-to-month comparisons. But to really drill deep and have an effective comparison, track the following.

Average sale by employee
To calculate, simply divide the total sales for an employee by the total number of transactions. So, for example, if John sold $4000 in merchandise for the week with a total number of transactions of 150, his average sale would be $26.26. We’ll put this into context in a bit.

Sales by hour
Just divide the total number of sales by the total numbers of hours worked. Using $4000 per week in sales and divided by 40 hours, the sales per hour are $100.

So, let’s look at how this might help in a business. Let’s say there are 3 employees, A full time manager and 2-part timers and here are their weekly sales analysis.

Weekly                                 Manager              Part timer # 1     Part timer #2
Total Sales                          $4,000                   $2,500                   $1,000
Average sale                      $26.66                   $16.66                   $12.50
Avg. sales per hour          $100                       $125                       $66.66

Here’s what we learned from this analysis.
Part timer #1, who works 20 hours per week, had a higher average sale per hour than the manager, although at $16.66, his average sale was substantially lower than the manager’s $26.66. These figures tell us that part-timer #1 is most likely an attentive salesperson but not as good as the manager at upselling. With some training, we can help him increase his average sale.

It’s not unusual that a manager’s sales metrics is not as high as a good salesperson working prime shifts because often, managers are distracted by administrative or other management tasks.

Finally, let’s talk about Part timer # 2’s stats. She works on Saturday and Sunday, one peak and one-off peak day. Nonetheless her sales do not stack up to her colleague’s and she needs training to improve these numbers or be replaced.

No matter which benchmark you use the important thing to remember is to track and monitor so you can see if someone’s performance is improving, staying the same or declining. If there isn’t regular improvement, you’ll want to intervene with additional training or, if warranted, replacement.

Until next time remember,
You can do this!

One of the most powerful and effective management tools is the debrief. It is an important way to end a particular program or sales cycle by analyzing performance and brainstorming opportunities to improve.

As you end the Christmas sales season, this is the perfect time to debrief about while it’s still fresh in your mind. In the future, you may want to schedule debrief sessions monthly or as often as once a week, depending on the type of business you run.

Gather your staff together for an undisturbed hour or so and review the different aspects of your business over the holiday season, i.e. customer service, product mix, customer satisfaction, sales goals, marketing effectiveness, etc.

Ask the basic questions about each area:

What did we do right?
What could we have done better?

In the debrief process, there is no “wrong.” The key is for everyone feel safe enough to be honest about their perspectives and learn from the experience.

Here are some of the questions for discussion:

Did we meet our goal If so, what elements of our plan helped us get there? If not, what prevented us from hitting those numbers?

Was our marketing effective? Did we see an increase in customers, sales, foot traffic, average sale?

Did we properly track and monitor these efforts? Which programs worked best?  Whichever programs we decide to keep, how will we modify and or improve them next year? Are there any new programs we to add to the mix next year?

Did we have the right product? The right price? Did customers seem put off by any particular items or category of items? Suggestions for purchasing next year? What do we need more of? Less?

Did everyone meet their sales goals? For those who did, what do you think were the reasons behind that achievement? For those who didn’t, what obstacles prevented you from reaching the goal? What can we do to better train or help the staff to meet and exceed goals in 2020?

The purpose of the debrief is not punitive. It is to get honest input, to gather information from everyone’s perspective to help you make better/improved decisions next year.

The key to a successful debrief is for everyone to get as specific as possible with their feedback. They can’t just say “We didn’t reach our goal because there wasn’t enough traffic.” If they think there wasn’t enough traffic, encourage everyone to dig deeper. For example, did our marketing efforts drive traffic? If not, what could we do better? Was our conversion rate up?  If average sale was down, is that an opportunity to adjust your pricing strategy.

Be sure to write everything down in detail so you can revisit the suggestions as you plan for 2020.

Commit to the debrief process to gain feedback that will improve performance not just next holiday season but year round.

Until next time remember,
You can do this!

Angel