What is the cost of a sales team? Most remodeling companies that use hired salespeople see it as a must have, especially if you’re going to scale the company (grow it to the point of profitability beyond the cost of overhead). If you are the owner of the company and you don’t have people skills, it may be an absolute requirement to have a salesperson.
Some folks just can’t spend time trying to convince people to buy a deck because of all the small talk and posturing that comes with it. I’ve met craftsman who own companies that have zero business going into a sales appointment. They just don’t possess the people skills and there is no way to teach them. Mind you, this is a small percentage, and most can be taught, but I’m not teaching that in this article. Let’s focus on the costs first so you can determine if you can afford salespeople, or what steps you need to take to be able to. For the record, I don’t use salespeople, but I have in previous companies.
Regarding the cost, it doesn’t stop with the commissions. In several past articles, I’ve discussed quantifying your labor, materials, and other costs in units like what you sell your decks at. Square feet, linear feet, etc. It’s not a terrible idea to do the same for your sales commissions. Most companies out there will pay out a flat rate of 5-10% for remodeling sales and have some sort of draw schedule to help get someone going until they reach the point of self-sustainment on 100% commission. Example: “I’ll pay you 10% of what you sell but will allow you a $500 per week draw against your future commissions. I’ll take 50% of your sales commissions out until your draw account is paid off. I’ll give you a maximum of $3,000 in your draw account. If you get to $3,000 and haven’t sold anything, you’re fired.” Others will do a base and commission. “I’ll pay you $25,000 a year plus a 10% commission of what you sell over $250,000 annually.”
Again, there are a bunch of ways to do this; however, if I were to add salespeople again, here is what I would consider doing. Since I charge for decks in compartments, I am going to skew commission rates based on those compartments and their profitability. I might do 7% on the deck and framing, 10% on railing, 5% on stairs, and maybe as high as 15% on lighting and accessories in order to encourage my salespeople to sell those higher margin add-ons that go straight to the bottom line. I am a fan of the base/commission plan so your people feel reasonably secure in your company until they get the sales going, so a $25,000 base and commission plan is the way I would go. However, I would create a way for the base to be forgiven. Before, I said the commission would kick in at $250,000 but if you hit $1,250,000 you get commission on the first $250,000 as a year-end bonus. Disclaimer: I am using round numbers, guys. The $25,000 is an example. Come up with your own for your region.
Now for some of the other costs. Managing salespeople is a real job with real costs. You can’t simply hand a lead to a salesperson and send them out into the world. Training is critical. You need to expose salespeople to constant training to keep their game alive. Weekly meetings of what leads were run the past week, what happened to them, what sold, what didn’t, why not, and more training including the hot seat (where you put your salespeople in front of a group and make them try to sell something to the group). Subscriptions to sales training, videos, and books. I recommend Jeffrey Gitomer’s Little Red Book of Selling.
After all that, one of the highest added costs is leads. You need more leads to have salespeople. You must advertise more to get the leads. I like to use a round number of $250 per lead as a cost to acquire them. So, before your salesperson even goes to the prospect’s house, you have invested $250 into them, each time. You must consider all of these added expenses when hiring salespeople.
Can you afford it? Try doing some math. If you build a $20,000 deck and you have $8,000 left over after you pay yourself, remember that you will now be splitting that remaining amount with someone. Is that worth it to you? Is what you are willing to pay enough for them? Will you now be able to do two of those jobs at the same time? Keep in mind that if you do two of those at the same time, you may only get back to the same profit you started with, which in my book doesn’t make it worth it to have a salesperson. Can you increase the price of your jobs to cover the cost of the salesperson?
If you can do that, then you need to question why you weren’t charging that much to begin with and what the need to increase volume truly is. Make sure you run the numbers every which way you can before you make a commitment to a salesperson and remember that there are categories of product sales where you have to have a salesperson, but I’m not convinced deck building is one of them.
If I was selling software, you better believe I’d have salespeople, and lots of them. Of course, all the cost in software is mostly the upfront development and some ongoing maintenance and advertising. Each time you sell a copy, the upfront cost diminishes, and the profit increases exponentially, so, every copy is a higher profit yield. Not so with a deck.
As a deck builder, you must develop the product every time you sell one. A sales commission paid out could have gone in your pocket, and oftentimes you can make more money building fewer decks.