Considering the expense and uncertainty of hiring new salespeople, the key is to retain your good associates, while offering a sufficiently attractive package to bring new people on board. That’s what this article is all about.
BY: JOHN CASHMORE
A record number of readers participated in this year’s Sales Compensation and Benefits Study, sharing their answers to our questions for the year 2013. This is the fourth consecutive annual study. A primary goal of this survey is to enable dealers to compare their pay/ benefits packages with others—both nationally and regionally.
For this year’s study, 274 companies reported their 2013 data (a solid increase from last year, in which 156 companies took part). As you might expect, more participation makes for a better, more accurate study, and we thank all those who shared their information for this year’s study.
In order to have a fair comparison from year-to-year, this year’s questionnaire was identical to last year’s. We studied all manner of compensation and benefits from employee pay structures to insurance and retirement plans. The numbers represented in this article, and in the full report, are accurate within plus or minus 5%. Thus, if a salary is expressed as $30,000, the salary may be anywhere from +5%, or $31,500, to -5% or $28,500.
As we all know, the economy continues to improve, albeit more rapidly in some areas than others. With a growing market, attracting and retaining the best employees is a major key to a company’s success. Studies conducted over the years by Opinion Dive Market Research and Consulting have indicated many builders, remodelers and even some serious DIYers follow their trusted sales rep, whether inside on the counter or outside as a road salesperson. It takes years for a salesperson to establish trust, and it is important to know what pay and benefit structures are being offered so you can leverage this knowledge and remain competitive in the employee market.
This year’s data was collected between the last week of July and first week of August via email. As in the past, all identifiers were stripped out of the data prior to any computations to preserve respondents’ confidentiality. If you participated in this year’s study, worry not, we have a separate list of those who participated for the free offer, and reduced investment in the full report.
Who We Studied
In order for you to know how relevant this study is to your operation, it is helpful to understand the make-up of the entities we studied this year. Chart 1 compares 2012 with 2013. For this article, we are presenting all data on a national level, however, the full report breaks down the regions to coincide with the regional editions of LBM Journal (Northeast, Southeast, Central and West). Dual Yards handle both Consumers and Professional Customers, while Specialty entities are composed of dealers/ distributors who specialize in windows and doors, roofing and siding, etc. Most categories of businesses had substantially more participation this year than last as indicated in Chart 1. No big box stores were included in the data of this study.
Seventy-two percent of respondents had fewer than 10 locations, while overall 30% of the report is driven by single location entities. This compares to 34% reporting for one yard entities last year, which represents no statistically significant change.
As the economy is reported to be improving, this fact was clear in the number of entities reporting sales gains in 2013 compared to 2012 (which also showed an increase over 2011 numbers). As you view Chart 2, you will note the largest sales volume gain is in those locations over $30 million. Most of those are single-location entities. As you view the target customer data (Chart 3), you will note an uptick to larger builders, most notably those who build 25 to 99 homes per year. This corresponds well to the sales gain results that were also reported by participating firms.
Who Are the Target Customers?
The target customers are shown in Chart 3, comparing 2012 to 2013. In Chart 3, target customers are shifting from smaller builders to higher velocity builders, but we must not forget that smaller custom builders are a primary target for most entities reporting. Also, the reality is that many builders during the “great recession” became remodeling contractors. LBM Journal readers have not forgotten how important this trade group is to their business. As you know, remodeling contractors generally contribute significantly higher margins than production builders, much of which is through special orders to meet the unique product demands of individual projects.
As you know, remodeling contractors generally contribute significantly higher margins than production builders, much of which is through special orders to meet the unique product demands of individual projects.
Interestingly, residential architects have become more of a target with these findings. Residential architects were being courted more as a target by distributors/wholesalers reporting, although some pro and dual yard dealers have indicated residential architects are a target for their sales/contact efforts in addition to the other classes of trade.
The Insurance Question
The Affordable Care Act, while passed in Congress and signed into law by the president, had not yet been implemented in 2013; however, the sign up period for the year beginning in 2014 was at the tail end of 2013. With the timing in mind, it appears from Chart 4 that the Affordable Care Act had little impact on the percentage of respondent companies offering health care to their employees. Additionally, 24 states chose not to participate in the ACA as of the beginning of 2014. Company contributions to employee health care, as is seen in Chart 5, changed little from 2012 to 2013, with the exception of the “Paid 100%” category, which decreased significantly from 2012 to 2013. An overall look at this chart shows a slight shift to lower company contributions for 2013. This shift may be a result of rising health care costs in general, which have plagued all entities from year-to-year. Also, it should be noted, the implementation of the Affordable Care Act for companies with more than 50 employees was postponed for one year.
Company health care contribution is least appreciated by younger employees, as they generally do not use the insurance.
However, as employees age, health and dental insurance appear to have a greater importance into their overall pay and benefits package. Several one-on-one interviews with health and dental care participants indicate younger employees would rather “have the cash” until something arises that causes them to use their insurance. Additionally, employees generally do not see contributions to Social Security and Medicare as a benefit to them. As some firms want their employees to understand the total cost of benefits to the company, they present employees with an itemized list of all benefits at reviews.
While we are on the subject of insurance, the view of dental insurance from 2012 to 2013 is shown in Chart 6. Dental insurance is provided by many of our respondents’ companies, but nearly 22% reported they do not provide the coverage. For those who do, most require employees to share a larger portion of the premiums than health insurance. As you will note, there is little change from 2012 to 2013.
Slight gains were reported in companies offering 401k or other retirement programs to their employees (Chart 7). Only 10% of reporting firms offer no retirement plan at all. And, unfortunately, 20% of companies reporting did not answer this question. These results are similar to the data we saw for the 2011 results. Combined, nearly 71% of all companies offer some form of retirement. Of those that offer a 401k program, 25% do not match any amount, while the norm appears to be matching some portion of employee contributions.
There have been some subtle shifts in the amount of the match between years, with a significant number of 100% matching firms dropping to a match of something less. Sixty-one percent of reporting firms match 19% or less of employee contributions.
The benefit packages have been viewed, but how about the members of your teams and their wages/salary? First, we look at sales personnel; it is important to keep in mind that in some firms, individuals hold more than one position at the same time.
Nearly 84% of respondents reported their firms utilize both inside and outside sales associates. Ninety-three percent of respondents report inside counter staff also support the efforts of outside sales personnel. In some cases, outside and inside staff are linked or partnered together, and both benefit from increased sales commissions or bonus dollars.
Outside Sales Personnel Pay
Now, let’s focus on employee pay. Outside sales people in many companies are the greatest sales engines for the firm, however, we also know inside sales personnel, stockers, warehouse people, truck drivers and cashiers can enhance or detract from the loyalty of a customer as they all, at one time or another, usually have customer contact. When respondents were asked how outside sales personnel are paid, the following was reported.
With just 18% of respondents’ companies paying their salespeople salary only, that leaves the vast majority—82%— paying at least some commissions. As you’ll see in Chart 8, LBM dealers utilize a variety of ways to calculate sales commissions. A statistically relevant shift seems to have taken place with more firms reportly paying outside sales personnel a straight commission percentage as a percentage of gross profit with substantially fewer being paid a percentage of gross sales compared to previous years. Twenty percent of firms pay their outside sales people by straight commission, which has held steady at that percentage for the past three years.
The second largest formula for outside sales people is a commission based on a variable percentage of gross profit based on gross margin.
Along with how their pay is determined, it is also important to understand adjustments (deductions) to their pay formula. Chart 9 indicates the areas most commonly deducted from outside sales personnel pay. This does not include areas where outside employees are paid extra through manufacturer and distributor spiffs, contests or other sales enhancing methods.
Material returns, whether they are for regular, in-stock merchandise and special orders lead the deductions from commissions.
Bad debts are the third most deducted scenario. One comment from a dealer was: “I don’t deduct bad debts when I made the credit decision.” Also, some companies factor their receivables, eliminating much of the risk for bad debts to the owners or their salespeople.
Interestingly, more than 70% of outside sales personnel have at least some pricing authority, while nearly 25% have none. This ties with how commissions are paid by the majority of respondents reporting in that gross margin and/or profits figure heavily into the commission formulas.
Pricing may be determined by owners, general managers, purchasing staff individually or in concert with the outside sales team. Chart 10 shows that most sales personnel have some control over pricing. This would make sense if they are paid a commission that factors gross profit or margin into the computation of commissions.
Okay, so this is where the rubber meets the road in total compensation for outside sales people. The figures in Chart 11 include all base wages, commission, bonus payments, spiffs, perks and, of course, insurance.
While viewing Charts 11 and 12, featuring highest and lowest total pay packages for outside sales personnel, you will note an increase from 2012 to 2013 in both. Part of this increase is possibly due to sales velocity increases; however, there may be other factors contributing to this increase as well.
In some cases, we know that base pay before commissions increased slightly over the past 5 years.
Again, this year the focus was on outside sales, but we also collected data on many other positions, too. First, let’s examine management positions. Unfortunately, not every respondent reported in this section of the questionnaire, so the range of precision is more like plus or minus 10%.
Nevertheless, certain trends can be identified from the data.
The figures presented in Charts 13 and 14 include total package remuneration— meaning base wages, bonuses, perks and insurance were included. Perks include cell phones, company vehicles as well as other advantages the company provides to employees.
Most positions have increased pay packages from the 2012 information. The sales management positions most likely show increases due to increased sales volume overall in respondents’ respective markets, with corresponding commission or bonus increases due to higher sales volume. It would be correct to assume that all pay categories rise to some extent when sales velocities increase.
As with managerial personnel, as sales increase, we would expect to see pay packages increase. It is important to remember that the pay package includes bonuses and other sales-related additions. These numbers do not reflect the difference between base salaries from one year to another.
It is our hope that this information has been beneficial to you and your company, and will allow you to continue growing your business.
Full reports are available for sale. A complete PDF copy of the results of this study, including every question and regional breakouts for many of the questions, is available for $249. Firms that participated in the study may purchase the complete report for $49. Learn more by sending an email to email@example.com