How much should you pay your salespeople? How should you structure their pay—base, commission, or a combination of both? Should commissions be paid on straight or variable percentages? Should the percentage be based on sales, margins or profits? What about benefits—insurance, retirement, bonuses, etc.? Though there’s no universal right answer to these questions, this article features the insights of hundreds of readers from throughout the industry and across the U.S.
With residential construction and remodeling white-hot in most regions of the country, the LBM industry is enjoying the spoils of the economic recovery that continues gathering steam. This is not the first time that our industry has recovered from an economic downturn, but our current situation is unique from prior rebounds in one major way: we’re still feeling the effects of the mass exodus of people from our industry following the Great Recession. Qualified people are in short supply and high demand— for builders as well as dealers.
That reality puts a spotlight on compensation and benefits. While pay isn’t everything, it is a fundamental piece of the puzzle for dealers working to attract and retain top people.
In response to demand from readers for current data on outside salespeople, we surveyed our audience in early 2018 regarding the compensation and benefits paid to their outside sales pros. We’d like to thank the 219 readers who participated in—and completed—this year’s survey. Next, we contracted with seasoned market research pro John Cashmore of Opinion Dive Market Research and Consulting to crunch the numbers and create the full 2018 LBM Outside Sales Compensation & Benefits Report.
Note: The article that follows summarizes some key findings; space restraints prevent us from publishing the full report here. Readers who completed the survey received a copy of the full report—including all questions and answers and regional breakdowns—at no charge. For others, it is available for purchase at a nominal cost. Details are at the end of this article.
Who we surveyed
In focusing solely on compensation and benefits for outside salespeople, this year’s compensation study asked fewer questions, which enabled our analyst to dig deeper into the data that those questions provided. As in previous studies, the focus of this year’s survey was on lumber/building material dealers serving professionals, consumers or a mix of both, along with specialty dealers and distributors (i.e. roofing and siding, windows and doors, etc.).
The two charts below paint an accurate picture of the makeup of this year’s respondents based on company type by customer category breakout, and by the region of the country in which they operate.
Annual sales of an entity are important as we consider how compensation varies among companies of different sizes. CHART A details the respondent company revenues for 2017 by customer-breakout.
How an outside salesperson is paid varies from entity to entity and are hybrids of the factors shown in CHART B. The most common is “Base + Commission,” with “Base + Commission + Bonus” the next most common pay program.
Formulas for commission payments
CHART C indicates how outside salespeople who are paid by commission have their commissions determined. As the chart shows, the single most common payment method for profocused yards as well as companies serving both pros and consumers is “Straight % of Gross Profit Dollars.” For the specialty dealers/distributors, “Variable % of Gross Profit Dollars,” is the most common.
On a national basis, most outside salespeople average between $60,000 and $100,000 in monetary compensation (this does not include insurance, perks, and other benefits). However, there are outliers, with respondents from pro-focused yards reporting that 11% of outside salespeople earn more than $140,000. CHART D below shows all monetary payments made to outside salespeople by entity class. For this 2018 study, the minimum monetary compensation level was raised to “Less than $50,000” from “Less Than $30,000” in our 2015 survey. On the other end of the scale, the top range was elevated from “More than $120,000” in 2015 to “More than $140,000.”
When queried about how much the highest paid salespeople were paid in cash, the following was noted, with results presented in CHART E. Notice how many entities reported that their “Highest Paid Salesperson” is paid more than $240,000. In the previous study edition (2015), 30.9% of outside salespeople were paid “More than $120,000,” which included all bonuses, perks and insurance. Cash paid to outside salespeople continues to rise and is typically a function of the increased business the outside salespeople generate, built on today’s high demand for construction products and services.
Health Insurance: When it comes to benefits, health insurance is among the most common and most desired. CHART F indicates how pending changes in the Affordable Care Act in 2017 affected health insurance coverage for outside salespeople. Changes will likely continue in health care coverage, with companies of all sizes navigating the ever-changing health insurance landscape to maximize coverage for employees within budget.
Dental Insurance: As it has from past studies, dental insurance coverage continues to lag behind health insurance coverage, with about 1/3 of respondent companies not offering any form of dental insurance. Offering dental insurance, but not contributing to the premiums, is an option that a number of companies in all categories have chosen. The breakdown of which type of entities offer dental coverage and contribute to the premiums are illustrated in CHART G.
Company costs of outside sales
In CHART H below you will see the Company Cost of Contractor Sales. This chart contains the information for both inside and outside salespeople, as many outside salespeople have inside assistants. In summary, sales compensation and benefits plans vary widely from company to company, and from region to region. Our goal with this research is to provide a snapshot into what other dealers are doing, and hopefully some insights to consider as you optimize your compensation plan. While money is only one part of the equation, it is an important piece to understand, manage and monitor.
Readers who completed the survey were provided with a complete copy of the results of this study, with analysis from Opinion Dive Market Research, including every question and regional breakouts for many of the questions. Others can purchase it for $299 at LBMJournal.com/SalesComp. If you’d like to participate in next year’s study, please send a note to James@LBMJournal.com, and we’ll make sure to send you the email invitation.