Dollars & Sense for Salespeople

Do your salespeople know where the money comes from to cover their pay cheques?

This may seem like an odd question but, in my experience, too many salespeople don’t really appreciate the fact that they get paid out of the profits of the sales they make. They don’t always connect the amount on their pay cheque with what they do everyday, which is or should be, closing sales.

On the other hand, commissioned salespeople know exactly where their money comes from and unless you have a simple, unambiguous commission plan, they’ll try to wrestle you to the ground for the last penny from every sale.

Salespeople who are on a salary only, salary plus commission, or salary plus bonus plan seem to think that the “salary” part of the plan is simply manna from heaven and has nothing to do with how much they sell or their sales targets and quotas.

Too many don’t seem to understand that their “salary” is paid out of the profits from their sales. In fact, it is paid from only a part of the profits because the rest of the profit must go to cover the other costs of running the business.

Salespeople need to understand the difference between Gross Sales (the selling price) and Gross Profit (how much money they made for the company). Just because they made a $5000 sale doesn’t mean you now have $5000 to spend. In actual fact, you may have only made $250 on the transaction and the salesperson has to make a lot more $5000 sales if the bills are going to be paid and the lights are going to stay lit in the business.

Some salespeople seem to feel they should have the lion’s share of the profit from a sale because they don’t fully realize the costs involved in supporting them in the field or the other costs involved in running a business. It doesn’t occur to some of them that it’s the profits from their sales that pays for the office staff, employee benefits, office facilities and equipment, trade shows, advertising, and the many, many other expenses that must be covered if you’re to stay in business and they’re to get their “salary”.

They also don’t seem to realize that their sales quota is there because that is the amount of sales required to cover their “salary” along with the required contribution to operating overhead as noted above. Some salespeople just can’t seem to understand that if they want a lower quota, they have to take a lower income.

Giving Away Money

Do your salespeople fully appreciate that whenever they cut prices, they give away profits, not cost? If you have a 20% profit in something you sell and your salesperson knocks 10% off the selling price, you just lost 50% of your profit. That’s the money you need to pay for the item, the salesperson, and all of your other expenses.

If you want a handy chart to will show you and your salespeople how reducing prices impacts your profits, request a copy of our “Look Before Reducing Prices” chart.

Educate Your People

Make sure your salespeople understand the concept and importance of making a profit. They need to really understand the difference between Gross Sales, Gross Profits, and Net Profits (what’s left at the end of the year after everything has been paid and is where the ‘bonus’ comes from—no net profit, no bonus). They need to know that their sales quota is there because that’s the minimum sales required for them to pay for themselves and their share of the operating expenses. They need to know that if they don’t make their sales quota, the Company may not be able to afford to keep them. Some salespeople need a shot of fiscal and financial reality!

Everyone’s on Commission

If you’re in sales, you’re on commission no matter what kind of remuneration plan you’re on. Salespeople must sell enough to cover their income along with making a reasonable contribution to the costs of running the business. If they don’t do that, they’re costing the company too much.

Bottom Line

Your salespeople are the tip of your sales arrow. Make sure they’re sharp and give the direction they need to hit their targets by making profitable sales that benefit both them and your company.