Where's My Money?

Chuck Lanham, owner of Lanham Window Co., in Fort Worth, Texas, doesn't like losing money on window sales. His three sales reps are paid a percentage of the gross as long as the project sells for 95% of list or better. And then, “we only pay on completion of the final payment,” Lanham says.

Medallion Security Door & Window Co., in Forestville, Md., similarly pays reps only when the job is finished and paid for because that way “they work harder and they don't leave the customer hanging,” says sales manager Brad Amron.

SYSTEMS OF PAYMENT Home improvement companies have many ways of compensating sales reps. According to Dave Yoho, a REPLACEMENT CONTRACTOR contributor and consultant who works with many of the largest firms, pay plans are often based on what salespeople are used to rather than what's most effective for company profitability and growth.

Generally, company owners don't begin to think about awarding any portion of a rep's commission until the three-day right of rescission period has passed and the job has been remeasured. But when all that's said and done, Brad Pompilli, co-owner of Tri State Home Improvement, in Branford, Conn., pays full commission. Though “people tell me I'm crazy,” Pompilli says paying reps up front is a big help in recruiting.

“When the job's measured and ordered, we pay 'em,” Pompilli says. “This way you're not holding up a check for two months.” Many companies bring order to the process by depositing commissions in accounts, from which reps can draw on a regular basis. According to vice president George Dunning, going to a draw system solved many problems at Homefix Corp., in South Orange, N.J. Every Friday Homefix pays reps 25% of what's in the account, which consists of their finalized commissions. The draw system, Dunning says, “avoids the roller-coaster ride of selling a $30,000 job one week and nothing the next.” Not only does it flatten out the highs and slumps of selling, it allows the company to keep a tighter rein on the profitability of jobs sold.

BEST OF BOTH WORLDS In his 18 years as a home improvement company owner, Jack Kostak, owner of All-Seal Home Improvement, in Dayton, Ohio, has tried several methods of compensating sales reps. At one time, for instance, the company used a draw system, and at another time it paid full commission when the job was sold.

Now All-Seal pays reps half the commission at the time of sale and the balance on completion. That “helps cash flow and keeps the salesman interested in the job,” Kostak says.

Industry consultant Chuck Anton suggests owners collect a third of the amount as a deposit, a third when the job starts, and a third when the job closes out, then pay reps their pro-rata share of each.

“The biggest problem in the industry,” Anton says, is that sales reps are “either in a draw system they learn to live down to, or they're on straight commission, hit a slump, and quit.” A three-step system, he says, keeps reps motivated.