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Help Figure Out Salary Of Part-time Sales Person
Posted By: jeff on 2/3/2007 10:50 PM (CST) 125 Points
Hello,

I am currently a one man show who has been in the print and web business for 5 years...working out of a home office. I am at a point where I cannot grow my business anymore because I spend many days selling jobs and nights doing the production on web and print projects. I am tapped out of hours. The most logical next step would be to hire a part-time salesperson who could do the selling while I do the production. The person I'm currently talking to has a lot of experience with large clients (proposals, bids, customer management, etc..) and is currently at a large agency as an account rep. They also have a large rolodex of past contacts.

This person is looking to leave the agency and work part-time from home and is looking for an opportunity. After talking with this person for 4 hours at Starbucks, they are a perfect fit in my eyes.

Now, how do I make this a win-win financially for both parties? Talking to a print shop owner friend of mine, he suggested paying a draw. Now for a full time person, he says he pays his sales guy $1,200 every 2 weeks and at the end of the month, after expenses, he splits the profits 50/50.

I run a different type of business than he does. So can someone offer a suggestion on what I could pay this person and what type of commission they should earn? Do they make money on recurring jobs? What if they sell an annual hosting package...do they make commission on that one time or get paid every year when it gets renewed? What about monthly website maintenance...if this person sold a monthly retainer to a client...say $1,000/mo for website updates, newsletters, etc...should they get a percentage of that too? It all sounds too complicated. Please help with any advice you can give. Thanks.

Posted by: CarolBlaha Member Response
2/4/2007 10:21 AM (CST)
My first thought was consider hiring someone to do production and you remain the salesperson. However-- since you found the perfect fit, that is wonderful.

First the easy questions-- Most salespeople do get commissions on recurring jobs. They are paid by the accounts they bring in, not just projects. They'll be doing the maintenance to keep those jobs coming!

Next- -how are you structuring this person? Are they going to be an employee or independent rep? I say this because they'll be working out of their home. They may like the tax benefits of being independent. I also own an independent rep agency-- salespeople who have got a taste of working straight commission would never want it any other way.

Next-- what goals are you setting for this person? Independent or employee, when you turn the reigns over to a salesperson, you need clear performance goals. If you do not have these in place, no matter what you pay-- you run the risk of overpaying for under performance.

With them working out of their home, do you have a process to inspect what you expect as far as activity level? Before you hire them, have a ramp up plan.

With performance goals in hand, activity goals to get there, and knowledge of where your profit lay-- you will be able to figure what you can profitably pay this person. Salespeople are profit centers and a typical salesperson generates profit to support themselves and I've read up to 5 support people. Since you are a two person company-- you will be able to share more. I am also assuming this person, being in the industry, will become profitable quickly for you.
 
Posted by: telemoxie Member Response
2/4/2007 12:51 PM (CST)
Maybe Carol's folks prefer working on straight commission, with maximum pressure on results, but not everyone is comfortable working that way. I believe that it is possible to set up a part-time arrangement which involves some sort of guarantee...

... for example, if the averages for your industry are that a full time person gets a certain base pay, plus health insurance, plus expense money... it would be possible to structure a deal where you have some guarantees. If you want a third of a person's time, some would consider it logical to pay a third of the expenses of a full time employee.

If you are a very large company, there are benefits to "manufacturer's rep" type arrangments, and there are benefits to employee type arrangments - and there are many other possible arrangement (e.g. resellers). I personally believe that small companies should have the option to have an "employee" type of relationship, even if part-time.

There are reasons that not everyone sells thru manufacturer's reps. There are reasons that many, many companies in your industry and in other industries pay a base in addition to commission. Before structuring a straight commission deal, I'd try to understand what those benefits are... and I'd try to determine whether or not those issues are important to you.

I have spent ten years struggling to convince the world that a part-time "base plus bonus" relationship makes sense for some small companies. Maybe it makes sense for you.
 
Posted by: CarolBlaha Member Response
2/4/2007 4:03 PM (CST)
You don't have to be a manufacturer's rep to -- be paid strictly on performance-- or to be an independent contractor-- or employee. I don't think the business this poster has would ever be for a manufacturer's rep. Good salespeople really don't need a guarantee. What they need is good back up support, a unique selling proposition and a good product.

I don't know of many who offer benefits for part time employees. I also didn't rule out base plus commission in my post. That is why I said to put the performance goals and profit percentages on a spreadsheet and decide what you can pay that person. I didn't rule out combination.

There are no guarantees. You can pay a salesperson a base of 50K, or 5-- the bottom line is if they aren't paying for themselves, overhead and making a profit for you --they need to be replaced. The number is insignificant with the right performance goals in place, and they are making plan. However, for the poster to be solvent, you have to do the math to understand and plan for the cash flow.

Carol
Sell Well and Prosper tm
 
Posted by: jeff Author Response
2/5/2007 8:47 AM (CST)
I really apppreciate the valuable comments.

Is there any way to get a hold of some starting numbers in terms of what someone should get paid..base plus commission? Is there an industry standard or is it really made up by the business owner? I don't want to overpay the salepserson and find that I've shot myself in the foot.

Can you give me any examples of some starting numbers? I do appreciate your feedback.
 
Posted by: CarolBlaha Member Response
2/5/2007 9:05 AM (CST)
Why don't you ask the new salesperson what their asking salary is (knowing it'll be plus commission)? Did you interview other candidates about what they are making to get a gauge? Monster.com has a "what are you worth feature" -- its based on geography (cost of living).

Carol
Sell Well and Prosper tm
 
Posted by: CarolBlaha Member Response
2/5/2007 9:08 AM (CST)
By the way, still put this down on a spreadsheet. Present them the base, but a realistic expectation of how much total they'll be making with the performance goals attained. You'll also have to have a method to deal with expenses-- especially if this person will be working from home. (phone, mileage, parking, postage)

Good Luck, Carol
 
Posted by: jeff Author Response
2/5/2007 9:21 AM (CST)
Great information.

Would it be smart to make one spreadsheet if they are working from home and one if I have to get office space and have to hire people? Obviously, I have to account for the growing expenses as I expand right?
 
Posted by: telemoxie Member Response
2/5/2007 9:28 AM (CST)
Lots of discussion so far... but I think many important points have not been covered. For example, how long are you planning to stick with this person?

Will you ask this person to handle some of the smaller accounts, so that you can focus on the "big fish" (if so, this is an argument for a base plus commission arrangement - it would be unfair for you to unload smaller and unqualified accounts and tedious tasks on a straight commission person).

If you pay expenses, you may begin to run afoul of the IRS "20 point test" (there is a link to more info on this on my web site). Are you willing to let the person be truly "independent"? If not, you will probably want an "employee" arrangement. And, unless the person is independently wealthy, it will hurt their credit score to move from full time to part time, and from an employee to an independent contractor... they may be much more comfortable with a "part-time employee" relationship than an independent contractor one.

For example, will you be integrating info from these efforts into your CRM? How?

In short, I believe that overpaying the person should be the LEAST of your worries. They say the most important hiring decision you will ever make is your first employee... you will need to put energy, thought, time, and money into this to make it successful. Done properly, with a sufficient investment on your part to give a high chance of success, you will lay a foundation for future growth.

Done in a haphazard way, you are probably throwing your money away.

Carol has described metrics, and certainly they have their place. But I believe you can look at more numbers than just sales - you may want to define some "interim" goals such as numbers of appointments, numbers of qualified folks added to the mail list, etc.

Carol says that good sales people don't "need" a base, and that is true in some cases (e.g. clearly if a sales cycle for a product or service is 6 months or more, most folks need a base or draw or something). Well, maybe this person you are discussing does not "need" a base or "need" air conditioning, or to send his or her children to college, or to take a vacation. But maybe they want those things. Maybe it is not enough to satisfy the minimum short-term needs - maybe you need to make a sufficient commitment (in time and money) to give this person a reasonable chance of success, so that they will feel comfortable leaving the security of a full time position to bring their Rolodex and experience and a high level of enthusiasm to help you grow.

If I could offer general advice, I would say that you need enough cash in the bank to pay this person's base for 6 months. We all want this person to get up to speed faster - and probably they will. But a six month commitment on your part will probably give this project over an 80% chance of succeeding.
 
Posted by: jeff Author Response
2/5/2007 9:54 AM (CST)
In all honesty, this is a learning experience as I go. I've come from the production background and never had a chance to be involved in the sales process....or pricing. When I met with this person, they were shocked at what I charged and said I was giving it away. I have been blessed that God has always brought me the business, but I have had cold feet on charging too much. In the 5 years I've been doing this, I've maintained 95% of my clients (probably because they get a great deal with valuable service).

I thought I could judge how much a business could afford for a website, print ad, photoshoot, etc...but after talking to this person, it sounds like they could sell the same service and get more dollars for the project.

I would plan on keeping this person as long as they would stay (and produce). The value and experience they would bring from the multiple ad agencies they've worked at is something I do not have.

I have enough cash to pay this person for 6 months...even 12, but I would be concerned if I didn't see any results after 6 months. I don't think that would be the case.

I assume if you pay someone a base, their commission is less. I like the thought a of a draw. Maybe I give the person 6 months with a base then the draw kicks in after that point. Or maybe it kicks in after the first big deal they sell.

So many ways to do this and so many options...
 
Posted by: CarolBlaha Member Response
2/5/2007 6:42 PM (CST)
My post says to define activity goals as well as performance goals. In fact, with a new salesperson, my ramp up plan focusses totally on activity. In sales, opportunity volume x win rate = volume.

I didn't think you were going to make this person independent-- I thought you decided to make him/her an employee. Some expenses still can be paid and be an independent contractor.

I'd just create the spreadsheet for this scenerio. Two things are the goal of this exercise. You are going to offer a base-- but you want to make it clear that this is only part of the compensation package. You dont' want the person to feel its base plus commission and the commission part is optional. You both need a realistic picture of what this person can accomplish and what they'll be paid. 2nd, I want you to understand the cash flow.

Do you still want the person to work out of their home, or your office? I wouldn't change compensation if they are using your office at this time. Nothing is set in stone, you can change a package at any time. I thought this person wanted to work from home.

Yes, if you pay a base typically commission is less. Like I said, the # is insignificant, they have to pay for themselves and be a profit center for the company.

Its really not that complicated. You are hiring an experienced person, so the ramp up period shouldn't be long. You will be able to tell by the activity level if this is going to work in the first 90 days. Sounds like he/she knows the business, can get more for your services-- they'll be profitable soon.

Base with later draw is a great idea. Even if you do base for 6 months, do a 3 months review of what's working, what is not working. Be candid. (A great book on this is Execution, The Discipline of Getting Things Done, Larry Bossidy and Ram Charan) Evaluate that the effort and pipeline is there so they can be profitable after 6 months. If not, part as friends. When the draw kicks in, raise the commission. In my agency, one of the companies has a mix of employees and agents. The agents don't get a base, a few expenses, and twice the commission of the employees-- if that helps give you a guideline.

In my mind, your priorities are to do the spreadsheet so you know exactly at what volume that person becomes profitable to you. Build the ramp up plan.

Carol
Sell Well and Prosper tm
 
Posted by: jeff Author Response
2/5/2007 7:41 PM (CST)
Yes Carol, I would plan to hire them as a part-time employee. I don't know if accounting wise, it makes more sense to do it any other way...I suppose my accountant can tell me that.

This person would work from their own home. I may possibly have to get office space in 6 or 12 monhs...I don't know. I'm just playing it by ear.

All of your information is truly valuable and I appreciate it.
 
Posted by: CarolBlaha Accepted Answer
2/5/2007 9:40 PM (CST)
Jeff-- you are right on. Play it by ear. Don't commit to more space till you can afford it. Grow intelligently. Your new hire is an investment. Contrary to some beliefs, the more you pay them does not guarantee return on investment.

Tax wise, do something that works best for the both of you. If a contractor, the hire has the self employment tax but a lot of deductions. As an employer-- you have a hunk of FICA and workman's comp.

After you hire them, post suggestions for a ramp up plan- -or email me direct and I'll send you my sample plan.

Best wishes, Carol
Sell Well and Prosper tm
 
Posted by: jeff Author Response
2/5/2007 9:55 PM (CST)
Thank you again for your help. This has been a huge value!
 
Posted by: telemoxie Member Response
1/17/2009 5:52 PM (CST)
hello Jeff,

Almost a year ago you were thinking about hiring a part-time salesperson. I'm curious if you ever did this. What were the results? Is the person still working with you?

I would love a chance to discuss this by phone. If you'd be willing to discuss your experiences, please send me an e-mail. You can find my e-mail address on my profile page by clicking on my username.
 
Posted by: jeff Author Response
1/19/2009 11:08 PM (CST)
I didn't have much luck with cold calls. I'm giving another person a shot to see if this work out....I'll let you know!
 
Posted by: gvar3000* Member Response
3/5/2009 11:41 AM (CST)
Hi Jeff,

I am in similar situation with your story. I was an owner of a small copy shop and was one man operational. Basically I am a graphic designer and a print production coordinator. Due to poor management I closed down my shop and sold all equipment and run this as broker in my home.
Now I am thinking that I would like to give all my clients (I have only few) to a recently opened print shop owner and want to work as a sales/marketing person with his company. I am going to ask him to hire me as sales person. He has space in there so I can fit in.

This case, How much salary plus commission I can expect?
Any suggestion would be appreciated. I will give more details if this story is not clear.
Thanks,
Guna
 


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