What type of compensation plan do you offer your sales team? What has worked and what has not? How did you implement those plans? How do you keep the sales team motivated?
“We pay salespeople 25% of net profit after the full deal is washed out. We do not book anything. Booking equipment has not worked. By not paying anything until the deal is totally washed, the salesperson stays motivated to move the used trade. Once booked, he loses interest in selling that piece. I have tried paying salaries plus an end of year bonus, but that didn’t create an incentive to make better margins for the company. We’ve been doing it for a long time and it works well. They can wash their deals and easily make great money. They may also sell another salesperson’s trade and are able to get a part of their commission. It creates competitiveness.”
— Name withheld by request
“There are many answers here and I won't tell you which is the best because I am not sure that the pay plan matters as long as there's a significant opportunity to gain income when a person does an approved sale. It is all about the strategy, process, hiring, training and leadership.”
— Don Van Houweling, Owner, Van Wall Equipment
“As we just acquired a New Holland dealership in September 2018, we have two separate sales teams with different compensation plans. It is something I want to make the same between both stores. Blue guys get 10% of margin on new, flat rate on used between $250-$1,500 per unit depending on value, whether they make margin or not. Base Salary $25,000 approximately, plus a truck. Red guys get approximately 2% of trade difference, plus base $26,000 no truck.
“I always liked the Red guys plan, easy to do commissions, no arguing over margin. Seems to work well in our CIH dealership. The red plan was developed by a consulting company a long time ago. The blue plan was developed by previous ownership a few years ago.
“I would like to see all salespeople more motivated to do more, and make more money. But, surprisingly, I find they are happy with a certain pay scale, and do not put a real hard effort to achieve more. I really need a way to motivate these guys.”
— Patrick Van Oostrum, President, Van Oostrum Farm Equipment
“Our four salespeople are all on salary with a year-end bonus. We do not have a commission based pay here. They do keep the manufacturers sales bonuses. I think for the most part, it works OK here.”
— Bill Hartzler, President, Lowe & Young Inc.
“We switched to a base salary plus 10% commission on margin. It was not received well at first, but it seems like the only way that makes sense given this farm landscape. We used to pay a small salary and 25% commission on new and 30% on used. When the farm economy went in the drain, the only people making out on that were the salesperson. Change was needed. I can’t say it motivates anyone more, but it makes them have to sell to make themselves money as well as the business.”
— Chris Eis, Owner/Manager, Eis Implement
“The compensation program I have used for years is based largely on salary or draw plus commission based on the sale’s gross profit. The size of the salary or draw always seems to be a function of the capabilities of the salesperson, i.e. a strong skilled salesperson would accept a lower draw or salary and a greater share of the gross profit. The share of the gross margin on a sales varied from 10-25% depending on what type of product is sold. The salary or draw varied from $500 to $1,000 per pay.
“One thing I tried was withholding a portion of the commission until the trade was sold if there was a trade involved (for example is the commission was 25%, I withheld 10%). This was intended to be a motivator to move the used inventory ...
“I’ve also been involved in commission sharing whereby if a trade was sold the commission was shared between the salesperson who brought it in and the salesperson who sold it. This was to mitigate complaints from the person who brought in the trade about not getting an opportunity to sell the trade because it was sold out from under him by someone else. The other goal was to try and encourage a team approach to the sales department and also provide the original salesperson a share in the profit.”
— Steve Lush, General Manager, Conestogo Agri Systems
“Reps are paid 25% of the gross margin on the deal and if it is a market share sale, they get an additional 0.05% of retail value. Parts reps are paid primarily hourly or salary and have a sales bonus if their year-to-date sales are greater than prior year sales. This is the same for our service managers as well.”
— Wayne Brozek, Aftermarket Vice President, 21st Century Equipment
“A compensation plan doesn’t make salespeople better salespeople, but it will drive behavior. The key to developing a plan that works for your dealership is to determine what behaviors are an area of focus, and then figure out how you drive those behaviors through compensation. Some use the carrot, others use the stick. At the end of the day, every compensation plan can be good or bad, depending on what your needs are.
“Our compensation plan is based primarily on a percentage of gross margin. We have bonuses that trigger when a metric is achieved. There are minimums that must be achieved to participate in bonus programs. There are times when flat rate or spiffs are used on select equipment, but it is limited.
“We have also found a little healthy competition is great to motivate a sales team. Sharing sales rankings including total sales, GM percentage and used levels all help drive behavior to want to be the best or to beat their colleagues.”
— Arthur Ward, President, Pattison Ag
“Our sales team is compensated with a weekly base salary. It is a true salary, not a draw. It is a whopping $500 per week, and so the idea is if they don’t sell to earn additional commission, they don’t stay and will figuratively, starve to death. The commission is paid out as a percentage of gross margin with three tiers. The higher the margin sale the higher the tier the salesperson gets.
“We offer a yearly bonus if their quota is met, which acts like a 13th month of commission, and usually run several ‘sales spiff’ type contests throughout the year to keep the team plugged in and motivated. We have also put a ‘bounty’ in the form of a large flat commission if the team can move a specific unit that is maybe aged, demonstrated, coming due, etc. All of these help to keep them excited and moving.
“It seems the best salesperson are the ones who ARE motivated by earning money. We constantly work with them to make sure the compassion and care also come forward so that the customer feels valued rather than the sleazy used car salesperson.”
— Name withheld by request
“For many years I have defended the commission structure of compensation for salespeople over salary. I have been a strong promoter of motivating your people and felt for a long time that I had the skills to motivate ... I do believe at this point that there is not a right and wrong pay structure for your people and that you are far better off to tailor make a system that fits the individual.
“For me personally, I would want to be paid 100% commission with no base structure knowing that I was in control of my future, and that any limitation on me would be imposed by me. In the 1970s that was how I started. In the 1980s when the world went south, many salespeople panicked and wanted security ... As a salesperson I could see that putting limitations on my overall ability to make money, but I was forced to comply with a single system. It was a system that was designed for the whole.
“As the industry changed, we then moved to a process based on a part base and commission. The commission evolved into being paid on gross margin because the management of the business’s looked for an easy fix to help them manage cost. The timing of the changes in the pay structure often evolved around the business when the salespeople’s compensation became bigger in the eyes of the management and or owners than they felt was fair to the business, and in a way helped management control sales cost ...
“When you talk about motivation, I believe people must motivate themselves and if they don’t have something inside them that pushes them to do more then you have a problem. As a leader, my job is to identify that button, that element within. My job is to be the fuel that helps them ignite their spark, the spark they brought to the game. When I made my move to management from sales, the owners told me that I did not have the experience and or the education they wanted. They were focused so hard on what I didn’t have rather than what I did have. The question was asked of me, what do you have? And in review what I had was that thing inside me that drove me, it drove me to get up early and to stay late. It drove me to be loyal to those that trusted in me. What I did have was a spark and I knew it. With the fuel supplied by my management I became motivated ... Motivation is the responsibility of the individual, and if he doesn't have it, run him off.”
— C. Max Smith, General Manager, Ag West Supply