Saturday, October 6, 2012

Are Commission-Based Salespeople Killing Your Factory?

With modular housing in a downward spiral for the past 6 years, many modular home factory owners and managers have switched to a ‘commission based” sales force. The board rooms in many factories have heard the pros and cons of how to pay the people that actually seek new builders and consult with the builders to close sales.

On one side you have owners, sales managers and board members that still look at their sales people as order takers. On the other side you have owners and sales managers that view the sales staff as the most important link in the chain.

So why is there such a difference in thinking between the two? Let’s take a look at the factories that look at sales people as order takers. It was so easy to get orders before 2007 that sales people usually only had to make phone calls or send emails to builders to get orders. Not much traveling was required. Many sales people were asked if they wanted a salary and a small commission or if they wanted a higher commission only system. Many of them took the commission only route thus setting themselves up for a major problem when housing nosedived in 2007.

And here lies the first problem. So many sales reps hold themselves at high-esteem, but if it were up to them they would die of starvation, for they are unable to land business for themselves now that the low hanging fruit has disappeared.

I contacted several large factory owners and found that when they went to commission only reps there sales actually stagnated or dropped significantly when the recession hit. The ones that  continued to use a salary and commission either saw the same stagnation or didn’t drop nearly so much in sales. The salary/commission reps felt that they were appreciated by the owners for their skill set and continued to work in earnest.

A lot of the commission only reps jumped ship and went with factories that offered salaries to reps. Today there are still factories using the commission only system but if you look closely, they are the ones that are hurting in both sales and production.

If you use Douglas McGregor’s (American social psychologist) categorization, sales people fall into one of two major categories:

Type X: Sales people are inherently lazy, dishonest, dodge responsibilities, dislike sales, thus they must be tightly controlled, coerced, threatened and punished. Sales reps have little ambition, want unconditional work security and prefer to be directed, for they do not like thinking for themselves.

Type Y: Sales reps inherently like challenge and responsibility. They are innovative and proud of their accomplishments. They can practice self-direction and self-control. The sales rep is willing to learn new skills, are creative and capable of thinking for themselves.

What happens at many modular home factories is that the commission only sales rep is treated like the Type X person while the salary based is treated like the Type Y.

This is why a lot of commission only sales reps jump from company to company trying to find the low hanging fruit again because they need to make money to pay for things like a mortgage and car.

How does a factory increase the number of builders it needs to stay in business if the sales staff only gets paid when they make a sale? Business development is not even a thought to these folks but many factory owners and managers simply don’t think that this is important.

The modular home factory that can continue to pay salary has a distinct advantage over the commission only sales factory as it has given the sales rep an incentive to go after new builders while still rewarding then for bringing in sales.

If you’re factory is commission only, you will always be looking for new sales people, usually from a pool of inexperienced people. You will pay them a training salary for up to 6 months before cutting the cord but it won’t be long before these reps start looking for a better opportunity. 

5 comments:

Randy said...

Coach,

I may not always agree with you on some topics...primarily the characterization of west coast modular... but in the case of this article it is spot on.In addition to what you say in the article, the rep that is strictly commission based...by definition will take short cuts and work for the long term relationship with the client because he in fact does have to make that mortgage payment.The days of " you will work harder because you are only commission based" are over and owners need to look at that very closely.

Anonymous said...

Randy is correct in his assessment of the commission only sales rep. They are dinosaurs whose time has passed. Our company did away with that system about 3 years ago and sales went up and new builders were added even while the housing market suffered.
Happy rep..happy factory.

Anonymous said...

How many sales reps will want to go back to commission only when housing picks up again? Probably only the pickers of that low hanging fruit.

Anonymous said...

This article is right on the money! In this market commissioned sales reps. will not want to travel far in hopes of getting a sale with gas prices they way they are these days. Any expenses they have to pay can be tough if they cannot produce sales or have to wait until the house is delivered to get paid. It's a cheap way out for the factories that still pay commission only sales. Work for us but we won't pay you unless you make a sale and then you have to wait for delivery to get paid. How many sales reps. can afford to live like that these days! Do they get any company benefits? I doubt it!
The factories that pay a commission plus salary are making the sales because those sales reps. are getting in most cases company benefits, paid expenses and they get paid weekly or bi-weekly and they can afford to go out and visit builders and produce sales. They are happy getting that paycheck and not having to wait weeks to get paid. It makes for happy reps. which in return produces more sales!

No. Cal said...

The factories that pay a commission plus salary are making the sales because those sales reps. are getting in most cases company benefits, paid expenses and they get paid weekly or bi-weekly and they can afford to go out and visit builders and produce sales. They are happy getting that paycheck and not having to wait weeks to get paid. It makes for happy reps. which in return produces more sales!
My thoughts exactly.