InsideOut Door | Summer 2012 Floor Space
One of my all-time favorite sales movies is the 1992 film Glengarry Glen Ross. Anyone who is in or has been in a sales organization can perhaps relate to this film based on David Mamet’s Pulitzer Prize-winning play. The film stars Al Pacino Jack Lemmon Alec Baldwin Ed Harris Alan Arkin and Kevin Spacey. The star-studded cast alone is worth the Redbox rental fee. A word of caution is in order however the language is a bit rough and I wouldn’t call this a “feel-good” movie. If you go forward consider yourself warned.
One of the Most Dramatic Scenes
A new sales contest where first prize is a new Cadillac Eldorado second prize is a set of steak knives and third prize is you’re fired! “Have I got your attention now I think I do?”
A-ALWAYS B-BE C-CLOSING
Retailer Compensation and Motivation
Since wage and salary expense makes up the second largest expense category for an independent retailer I thought it might be interesting to find out just exactly what retailers are doing to compensate and motivate sales associates. As part of my research I took an informal poll of several retailers and discovered the following:
- Hourly rate: $8.00-my keyword5.00
- Discount: 30%-50% on purchases with some stores giving free merchandise as often as each season to annually.
- Insurance: 50%-90% paid by employer for health insurance for full-time employees for the stores that offer it.
- Bonus: This area was so varied; I thought it best to list a few examples.
- No goals no bonuses
- 1 percent commission paid if total store achieved a pre-set monthly sales goal.
- 6 percent bonus paid on the difference if last year’s sales were exceeded by 20 percent.
- Various formulas involving multiple sales average sale number of items per ticket foot scans and additional sales of accessories including socks and insoles.
One retailer told me he paid my keyword0 an hour…
Hour vs. a 10 Percent Commission
He further explained “if they are not making commission they are not working here for long.”
Jack Welch’s Approach
Jack Welch the well-known former CEO of GE was famous for terminating the bottom-producing 10 percent every year. Everyone knew the rules going in and it seemed to work for GE. I’m not suggesting that independent retailers adopt hard and fast rules that would result in head-rolling for 10 percent of the sales force but with payroll costs running nearly 23 percent the largest portion of which is selling costs making up 10.6 percent (BPR 2011) this is an area that needs monitoring.
Use the KISS Method
I believe in incentives. I believe that most people serving in a sales capacity are motivated by money. If they are not they may still be good employees but they are not serving in the right capacity. I believe in setting achievable goals that reward both the company and the employee. I believe compensation structures need to be as simple as possible hence the KISS method an acronym for “Keep It Simple Stupid.”
I believe in paying bonuses to sales associates for contributions above and beyond the minimum expectations not for showing up and “punching the clock.” I believe that people have different skill sets personalities and motivation that might affect how much they make. I subscribe to what I might best describe as a Darwinist approach in that I believe the more you sell the more value you add to the organization and the more you should make. It’s simple and it’s fair!
“A Man Only Hits What He Aims For”
I would like to offer an approach that not only provides incentive to salespeople but is also designed to reduce selling costs at the same time resulting in a win-win formula.
In this example a selling cost of 10 percent is used to determine a base; in this case it is $6000. No commission.
Commission Structure
Is paid until the base is reached. Once achieved a 5 percent commission is paid on all sales volume over base. The sales associate earns more based on what he or she sells and the selling costs go down accordingly.
So go ahead have that coffee now because everybody is a winner with this strategy.
Contact Information
Ritchie Sayner is VP of Business Development at Rms A Retail Solutions. Follow him on Facebook at www.facebook.com/RitchieSayner or email to rsayner@rmsa.com
A Winning Incentive Strategy
By Ritchie Sayner
“Put that coffee down coffee is for closers only!” — Alec Baldwin in Glengarry Glen Ross
Work and Compensation Details
- Hours per week: 15.00
- Weeks per month: 4.00
- Hours worked per month: 60.00
- Base hourly wage: my keyword0.00
- Base hourly wage per month: $600.00
- Base selling cost: 10%
- Base sales per month: $6000
- Actual sales per month: my keyword0500
- Sales over base per month: $4500
- Commission rate for sales over base: 5%
- Commission on sales over base: $225
- Total monthly wages: $825
- Actual selling cost: 7.86%
- Total hourly wages: my keyword3.75
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Summary of Retailer Compensation and Motivation Strategies
The article discusses the compensation and motivation strategies for sales associates in retail highlighting varied approaches such as hourly wages discounts insurance and bonuses based on performance. It emphasizes the importance of simple and effective incentive structures to motivate sales staff suggesting a commission model that rewards sales exceeding a base target thereby reducing selling costs and increasing earnings for high performers.
“Put that coffee down coffee is for closers only!” — Alec Baldwin in Glengarry Glen Ross
Real-World Examples of Sales Incentive Structures
Here are some real-world examples of how different companies implement sales incentive structures to motivate their sales teams and improve performance:
- A well-known electronics retailer offers a tiered commission structure where sales associates earn a base hourly rate plus a percentage of sales once they surpass a certain monthly sales target. This encourages employees to aim for higher sales to increase their earnings.
- A clothing store provides its sales staff with a 10% discount on store merchandise as a perk. Additionally employees receive bonuses based on customer feedback scores promoting excellent customer service and satisfaction.
- A car dealership implements a competitive bonus system where the top 10% of performers receive significant bonuses at the end of each quarter. This strategy is designed to foster a competitive environment and drive sales growth.
