By Stacy Zemon, Publisher & Chief Scribe
Multi-op managers who also entertain every weekend and try to strike a balance between their professional and personal lives, may not have the additional time needed to devote to the sales end of running their DJ services.
If this is the case for you, then hiring a dedicated sales person on your team may be the solution.
There are a few variations of sales compensation plans that can work well. Combinations of base salary, commission, and bonus usually work well as long as the numbers involved don’t under or over compensate a sales person. And, the plan must be simple enough to both understand and administer.
How Much Should You Pay?
Generally speaking, I recommend that between 17% and 26% of the gross profit generated by a sales person in any given sales year be paid to them. This range includes any base salary and all at risk compensation.
For very high performers, the top end of this range can be expanded some, but it must be built into the plan initially. When businesses routinely give 30% or more of the gross profit generated from a sale back to the sales person, that leaves too little to contribute to other expenses of most businesses.
A Simple Plan
A simple plan might consist of:
- A base salary of $25,000 per year
- Plus 10% of the gross profit generated
- Plus a year-end bonus of $5,000 if the sales person generates at least $350,000 worth of gross profit in that sales year.
- Total compensation in this example would be $65,000. This amounts to 18.6% of the gross profit generated being paid out.
A More Complex Plan
A more complex plan might consist of:
- A base salary of of $25,000
- A commission schedule of 8% for monthly gross profit up to $17,000
- 10% for monthly gross profit between $17,001 and $25,000
- 14% for monthly gross profit in excess of $25,000
- A bonus plan that would pay at year-end an additional 3% of gross profit if the sales person hits a minimum of $400,000 in gross profit.
An Illustration
Let’s assume that the sales person hit exactly $30,000 in gross profit each month or $360,000 in total gross profit for the year. The calculation of the annual compensation would look like this:
- Base salary: $25,000
- Commission: ($204,000 x .10) + ($96000 x .12) + ($60,000 x .14) = $40,320
- Bonus: $0 since the sales person did not reach the $400,000 level
- Total Compensation: $65,320 or 18.14% of gross profit generated
(In this example, I show an annual commission payout for illustration purposes only, but monthly commissions are almost always the rule. The sales commission number shown above would actually be paid out over the course of the sales year.)
These examples are provided only to illustrate possible approaches to sales compensation. There are a number of ways to develop a workable and effective sales compensation plan.
By paying a sales person rather than handling sales yourself, you may end up trading gross revenue for more free time – or in the best-case scenario, you would find that an effective sales person pays for him or her self in new business generated PLUS you also have more free time!
DISCLAIMER: This article is meant for informational purposes only and is not intended as legal or accounting advice.
