Balancing Act

January 17, 2014  by in Business Strategy, Industry   

By Powell Slaughter

SALARY OR COMMISSION? NO ONE SIZE FITS ALL FOR HOW FURNITURE STORES PAY SALESPEOPLE.

Salary or commission, or some combination thereof? How you pay your salespeople is a question of your store environment, traffic and how your sales approach fits your business goals. Home Furnishings Business asked retailers and sales trainers for their thoughts on the topic—the former on what makes sense in their business model; and the latter on which compensation approach works for different sorts of retailers.

Short story: Commission is the best motivator for go-getters who want to hoe their own row; and salary—or some sort of guaranteed income—helps create a friendlier, less high-pressure environment for customers.

Which model, or combination of sure compensation and incentive, is a call you have to make on your own. Following are thoughts to consider when making that call.

Salary Vs. Commission

Home Furnishings Business asked several retailers which sales compensation they prefer—salary or commission. Read their responses throughout the following pages, starting here.

Commission

“To me, it’s the lesser of evils – in a perfect world, I’d love to have people work on salary, but the truth is we have a wide range of performance among our salespeople.

If I put everyone on salary, I’d have to pay my best people less. We do push in the element of a blend because we have a bonus system based on how well the store does.”

Richard Tubman
Circle Furniture
Acton, Mass.

 

Salary

“In my opinion, paying commission many times brings out the worst in an individual. When someone walks in the store, they know if someone’s working on commission.”

Bob Mills
Bob Mills Furniture
Oklahoma City

Base plus Commission

“The base is to compensate for the administrative tasks I hold them responsible for – we’re are fairly small and everyone has to do a lot of things.

“The sales commission is based on a minimum requirement of $30,000, when they get 6 percent. Once you $70,000 it goes up and so on. We pay 3 percent on closeouts – I gave up margin, so they give up margin.”

David King
DoMa Home Furnishings
St. Petersburg, Fla.

Commission

“We do a weekly draw and pay commission monthly. It keeps them hungry. It’s better for us and for them to have a sales force on the floor that’s motivated for high performance.”

Rick Howard
Sklar Furnishings
Boca Raton, Fla.

 

Commission

“We are commission. In sales, you are not paid to finish a job, the sky should be the limit. We want to keep the possibility of unlimited potential income out there for them. “The more you put into it, the more you get out of it.”

Jeff Selik
Hillside Furniture
Bloomfields Hills, Mich.

 

Base plus Commission

“We do a base and a draw against commission. The designers get more commission than the salespeople because they do the house calls and the big sales, and longer-term projects. “The sales team gets a base because they sometimes have to turn a customer over to the designers when it becomes obvious it’s a larger scale project that needs the extra service.”

Rosie Lebewitz
Rosenthal Furniture
Minneapolis

Salary

“We are a little bit of mutant in that regard. Everyone is basically salaried. In our operation people have lots of different jobs, and we don’t have straight salespeople. It can be difficult being focused on making the sale, but they have a lot of ownership in the business, and we tend to have very strong employees. We do have bonuses that are performance and sales-based, so we aren’t devoid of the incentive of getting a higher income.”

Jacob Harlow
The Century House
Madison, Wis

Commission

“We had been doing salary with a bonus, but our CFO has convinced us to switch to a commission-based plan as of January. We weren’t meeting our sales goals, and our sales expenses were high compared with the rest of the industry.

We needed to inject a degree of hunger into the equation, while retaining the quality of a friendly, helpful sales associate.”

Mark Binkhorst
Burlington Furniture
Burlington, Vt.

 

“We’re looking for the people to be entrepreneurs who rely not only on people walking through the door, but also on their own personal business development. Commission fits our culture and our goals in the organization.” – Garry Ikola, City Furniture.

 

ENTREPRENEURIAL SPIRIT

Salespeople at Tamarac, Fla.-based City Furniture work on straight commission supplemented with bonuses.
“We’re looking for people to be entrepreneurs who rely not only on people walking through the door, but also on their own personal business development,” said Garry Ikola, vice president of sales. “Commission fits our culture and our goals in the organization.”
At City, salespeople are expected to essentially run their own business within a business, and the retailer goes to great lengths to attract talent who gravitate toward that model.
Commission works best in high-volume, high-traffic stores, according to Jeff Hiller, director of training for Chicago-based JB Training Solutions.
“If you’re a mid-size to big retailer you’re probably running pure commission, with a draw against commission,” he said. “That’s harder for smaller stores since the traffic potential isn’t enough.
“The big stores count on salespeople to sell maybe $800,000 a year, which (with typical commission) gives an income of $40,000 to $50,000 a year. If you’re awesome, you make 80 to 100 thousand.” At a retailer running $2.5 to $7 million dollars in sales a year, salespeople might be targeting $500,000 to $600,000 in sales, and Hiller worries that might not generate enough commission on a consistent basis to keep top people on hand.

“If I’m looking for a good person to work my floor, can they really survive or be inspired by making $30,000 a year?” he said. “What I like, is if you’re in that middle range, have a base that is covered, not a draw, say $26,000 to $30,000 a year. Add on a bonus system based on a graduated scale for monthly performance.
“That way, if I’m a salesperson hitting $800,000 in sales for the year and hitting bonuses two out of three months, I’m making $60,000. The balancing act on compensation is urgency versus complacency.”

Commission’s Incentive

Tom Zollar, practice manager of retail operations for Impact Consulting of Atlanta, is a proponent of commission since it ties sales team performance so strongly to compensation. “I believe that sales staff should be paid directly based on performance using some sort of commission structure and when possible, bonuses for hitting set goals,” Zollar said. “In some situations this may be on top of a salary or draw, but the greatest portion of their package should come from commission on sales.” He added that it’s not an all-or-nothing prospect between straight commission and some sort of guaranteed income.

“Here you have the options of straight fixed flat rate, variable sliding scale, or set step-based commission programs,” Zollar said. “All of which work great if they are properly administered and communicated. The key is finding the best one for your store culture and your client base.”

Atmospheric Conditions

Commission-based compensation is a definite motivator for salespeople looking to make their mortgage, but there is a downside. “If salespeople get behind on their draw, they get crazed, and customers pick up on that,” Hiller said. “What you want on the sales floor is gentle persuasion. My sense of customers is that they’re like horses. They can read a nervous rider, and if they sense a desperate, hungry salesperson they shy away. “The balancing act on compensation is urgency versus complacency.”

And whichever route you go on sales compensation, don’t forget that the sales manager— whether that’s you or another individual— also should be held accountable for what happens on your floor.

“My strong feeling is that anyone who is responsible for performance results within an organization needs to have a compensation program that includes some sort of ingredient that is tied to improving the results they deliver,” Zollar said. “It can be tied to actual performance numbers—i.e. commission—or the achievement of set goals and criteria—i.e. bonus—and can be in conjunction with a salary based on the total responsibilities the role includes.”

For sales managers, Zollar suggested they need a salary to carry their responsibility over staff members.

“However, a substantial part of their total package should be tied to how the people under them perform, based on history and goals set by upper management,” he said. “This additional component could be a small commission on sales above certain levels, a bonus based on hitting set volume targets and/or key performance index goals (i.e. gross margin or average sales) or a combination of these.

“The main thing is that those responsible for the performance of others understand that a meaningful part of their compensation is directly tied to how their team performs on a monthly or at least quarterly basis.”

The Conundrum

While Zollar is a big believer in the power of commission, he does understand why some retailers think a non-commission sales staffs create a better, less intimidating floor culture for their customers.

“That is certainly the case in most stores I have seen that use a salaried sales force, and as long as their total income is somehow tied to how they perform, I am not opposed to it,” he said. “From a psychological standpoint, in order for their compensation program to have any motivational impact on how they behave on a retail sales floor, most adults need to understand the WIIFME Principle (What’s In It For Me). “So if you tied their salary increases to performance results or gave them additional bonuses for sales achievement on a monthly basis, that would help fulfill this need in a noncommission sales environment.”

Basically, you want your staff to realize that the more they sell, the more they will make.

“All that said, I do believe that in most store situations the sales manager would have a far stronger motivational tool with a commission based sales force versus one using a salary-based compensation program,” Zollar said. “Both can work, but the innate motivation of tying a person’s income directly to what they sale is hard to beat.

“Of course, it also creates a variable versus a fixed ‘cost-of-sales’ financial consideration for the business, and we all know which one the accountants would prefer.”

While City Furniture is committed to commission, Ikola noted there is no single best compensation structure. “You have to find one that fits your goals, and commission has served us very well,” he said.

HFB