BrainTrust Query: How to Create a Commission Structure for Better Retail Salespeople
Commentary by Bob Phibbs, The Retail Doctor
Through a special arrangement,
presented here for discussion is a summary of a current article from the Retail
I believe in commissioning sales. Whether that means employees
get an hourly rate and a percentage of sales, a bonus at the end of the month
or a chance to win a trip. Call it what you want but the best bosses share
the wealth, they don’t hoard it.
That said, paying a flat commission on everything
means it is a given — there are no goals to have to achieve so it can lead
to employees feeling they are “entitled” to
it rather than having to earn it.
Some stores only commission high-profit items
or various levels to minimize paying commissions on staples or low-margin,
high sale items.
As an alternative, I’m sharing what admittedly could
seem like a complicated commission structure but read all the way through:
- Make a schedule for the month. Enter each employee; each shift’s
total hours to the best of your abilities.
- Total up each employee’s hours for the month.
- Add all employees total hours, then multiply the total hours by 15 percent.
This is the maximum amount of hours you expect to use for the month.
- Divide your total store goal by that figure.
- Multiply your individual employees hours by that number to arrive at the
amount of every employee’s monthly goal.
- Then, each day your employees work, make a goal sheet with each employee’s
name and the amount they are expected to sell that day.
- At the end of the month, you use actual figures for total hours employees
worked to arrive at correct dollars per hour they should have sold.
- If the store hit the store goal, you reward those who went over their goal
by whatever you have promised, whether that is a percent of the increase
or other bonus. If the store missed the goal, even if an individual employee
goal, no bonus. It’s great to have superstars but you need the crew to hit
the goal in order to share in the increased business. Otherwise you just
end up paying certain employees more because they clerk more or hog the floor
from the others — neither of which builds sales.
Here are two things that make this valuable:
- Nothing happens unless they hit the goal and;
- You only pay out based on actuals, but set the bar higher in case someone
quits and you need to train someone new.
Finally, whatever you do to reward employees’ sales, pay it out as quickly
as possible to keep them motivated, preferably within a day or two of the end
of the month. Using this commission system isn’t the only way to produce
sales but paying commission based on sales goals clearly sets boundaries for
your crew to move the needle higher.
Discussion Questions: What is an ideal
payment structure for commission-based retail staffs? What do you see as the
common problems and benefits of commission-based pay structures?