Motivating Factors
Setting up a commission structure.
By Matthew Kreitman

Most sales jobs have some kind of commission or bonus scheme attached to them. Extra pay for extra productivity is the proven single most efficient system of increasing the efficiency of your salespeople - which, of course, translates into increased profits for you.

Setting up a commission program from scratch is surprisingly easy. Although there are definite ways of being creative or tweaking its structure to fit your particular circumstances, almost all come down to variations on the same standard ways of sweetening the pot.

The Pros and Cons of wage and commission.

The most common model found in retailers in every sector across the world is to pay a decent hourly wage with a one- or two-percent commission on all sales made. This means everyone walks home with an acceptable paycheck. The problem, however, is that your really high producers don't come out with that much more

take-home pay than your lowest producers, which reduces their incentive to work harder.

One alternative is to pay a low hourly wage with a higher commission rate. This rewards your high producers and is effective if you have a top-notch sales crew.

Bruce van Kleeck, vice president of member services for the National Retail Federation, warns of a couple of risks involved with a high-commission model.

"On bad weeks, and all stores have them, your staff is going home without much pay," says van Kleeck. "That causes a lot of resentment, which is going to be directed at you. Nobody wants to have unhappy, starving employees.

"Also, a high-commission environment usually means a high turnover, because you'll probably find several good producers, and then have to endure a steady stream of others who just can't cut it or don't enjoy hard competition among the staff."

Although a high-commission structure can be useful in weeding out poor salespeople, it can also be a hassle always having to train new staff members.

Incorporate draw plus commission.

A less harsh structure, but one that allows you to effectively phase out poor sales staff, is draw plus commission.

Start by figuring a reasonable weekly pay - for example, six dollars an hour times 40 hours makes 240 dollars. Everybody takes home this "draw," regardless of what they sell. But at the same time, you're also assessing a percentage of sales as commission. This is added up and anything above the weekly pay is added on top.

Use a draw system to monitor performance.

"Cream always rises to the top," says van Kleeck. "Those who can't keep up go into arrears."

The draw system allows you to easily keep a close tab on how well your salespeople perform. Employees who consistently take home only their basic pay are obviously not selling.

A similar way of keeping track (and a way that eradicates fluctuating weekly sales or differences in staff members' hours, is to average the hourly sales rate for the store per employee.

"Employees producing less than 75 percent of the average hourly sales figure, or consistently making no more than their draw, need additional training," says van Kleeck. "Don't be too severe to start with, because there could be a simple problem that can be fixed. Start with a positive approach. Staff have to be made to want to succeed. Only if a staff member continues at low levels should they be let go."

Utilize flexible commission rates.

Don't be too rigid on your commission rates. It takes some level of skill, time, and expertise to close a deal on a high-end snowboard. This should earn a higher commission rate than low-ticket items a customer simply picks off the counter or rack.

However, don't increase the commission rate just because you want to move a particular line. Not only is this usually ineffective, but it can be confusing for the sales staff and a disservice to the customer. A discount or bundled giveaway is more likely to create a sale than a slightly more motivated salesperson.

Institute a productivity bonus.

Another common system based on sales performance is a graduated productivity bonus scheme. This is often divided equally among groups of employees and is effective for motivating staff to work as a team. In larger stores, a bonus is often used for managerial staff that supervise floor sales, but don't have the opportunity to earn much commission.

Set a high sales target that earns a high reward. Then set a more manageable level that earns a little less bonus, and then another at a lower mark.

This system can be used to set longer-term targets. For example, you could set a goal for sales during the designated dates of the Christmas season. Alternatively, use it to help boost sales during slack periods.

A seasonal bonus that covers total sales between October and April is an effective way of holding onto better staff throughout the season; in effect, rewarding them for sticking with you through the year.

But van Kleeck warns: "Longer-term bonuses become less effective the lower you go in seniority. Sales staff generally respond best to instant gratification. They like to see their efforts end up directly in their pockets on the next payday."

Remember, whatever commission you pay your staff comes directly out of your profits. Obviously, the lowest commission rate you can pay out for the most motivation, the better. Kicking in little cash extras that don't produce any notable benefits just to keep everybody happy is no way to run a business. Instead, use other perks, such as trips, days off, demo days, or free gear for extra rewards.