How to Create Your Sales Team Commissions for Success
There are many different types of sales jobs in the construction industry. It's important to know the type of sales rep you should hire and to incentivize them accordingly.
The pay structure will depend on the type of projects and product/service your sales rep is selling.
The size of the deal, the profitability of your projects, market rates, the ease of making sales, and other factors will impact the commission structure.
As a construction company owner, it can be difficult to know what to pay your team to keep them incentivized.
Let’s explore different types of commission that could make sense for different sales areas.
General Guidelines for Setting Your Commission Structure.
The goal of setting the right commission structure is to find a win-win situation where your sales rep is incentivized and makes economic sense for the company.
To give you some baseline sense of how much to spend on sales and marketing, most companies spend between 10 - 30% of their profit or more on their marketing.
As long as your sales and marketing efforts bring in more than they cost, then its worth it.
It's important to note that you need to invest in your construction marketing and sales over time, and it takes time to see results.
Typically, the bigger the deal, the smaller the commission percentage, but the overall commission amount is higher. Margins are usually tighter on larger projects as well.
Sales reps who can manage and bring in big deals are very valuable.
Commercial sales reps tend to get more base pay than residential because they have longer sales cycles and more formal roles.
Rightfully so, smaller deals have a larger commission percentage.
Keep in mind that the better base you pay, the less you can pay in commissions and vice versa.
Its between you and your rep to decide and find that win/win.
Timing of Commission Payments
Again, it's totally up to you how you structure it, but typically, we pay our sales reps according to the payment milestones of the projects they win.
That way, they are aligned with you to win good projects and take on good clients where we can complete the project quickly and get paid on time.
If you choose to pay them all of their commission upfront, you might able to pay them less as they would get access to their commissions.
Residential Construction Commission Structures By Type
Residential Renovation & Home Services Commission Structure:
For areas of residential construction, I’ve seen companies that pay base and commission or solely commission. It can be less of a formal role in the residential construction world.
If you're looking to hire professional career salespeople, you may want to offer some base.
Offering a base will help you secure good talent and ensure they are committed to selling for you and you only.
If you areonly offering commission, that sales rep could bring that deal to any construction company.
This can make sense if its a less formal role and your just looking for some referrals.
If you offer just commission, the commission percentage will likely be higher, between 5% and 15% of revenue.
The base salary can range from $25 - 35/hr+ plus 2 - 10% of revenue.
Residential projects tend to be lower paid due to project value and volume.
Residential Roofing Sales:
When you're a roofing sales professional, you can get clients in many areas, including working on residential projects.
For residential, you might go door to door, hand out flyers, cold call, or hand out a list of hot leads daily.
Common ranges I’ve seen include 5-12% of gross sales or 25 - 50% of profit per job. These tend to be more commission-based only.
Single Family New Construction
New construction deals for single-family homes are typically much larger, especially if you sell luxury homes.
The margin on these projects is also tighter.
Sales reps are likely to get paid similarly to commercial construction sales reps with a $60 - $100,000 base and 1 - 2% of total revenue.
Residential Sub-Contractors
Typically, they get paid similarly to the residential renovation GCs, and the commission will depend on the deal size and profit margins.
The base could be between $50 and $100,000, and the commission could be between 1 and 3% of the revenue.
Commercial Construction Commission Structures By Type
Commercial Renovation Construction Sales:
This is where the sales guys get paid more due to the value of each project, the longer sales cycles, and the more sophisticated customer base they will be selling to.
The commercial sales realm is more formal than residential. You need a higher-caliber salesperson who is trained in commercial construction sales.
These guys get a good base, normally 70-100k+ commission, which can be 1-3% of the total project or profit, depending on how heavy your base is.
Remember that the percentage of revenue might scale down with deal sizes.
Commercial construction sales jobs tend to have bigger opportunities, but the sales cycles are long, and it can take a while to land the projects that you bid for finally.
This is why they tend to have a heavier base than other construction sales jobs.
Commercial Roofing Sales:
When working on commercial projects, your team can get more significant projects and more repeat customers.
This is more profitable for the business owner and just like commercial renovation sales, this is a much more formal sale, meaning these guys should get paid more.
Again, I’ve seen people pay out their sales guys 5-12% of the gross sales, but in many cases, I’ve seen these guys have a base pay similar to the commercial renovation sales reps - between $60 - $100,000+
They add base pay here because they realize how much time it takes to break into a commercial account.
The jobs bring in more profit, and they can pay their guys less in the end than if it was only commission-based.
Commercial New Construction
Commercial new construction has some of the largest deal sizes
The margin on these projects can be much tighter, especially as you go behind the $5 - $10M range.
Sales reps are likely to get paid similarly to commercial construction sales reps with a $60 - $100,000 base and .25% - 1.5% of total revenue, typically scaling down the size of the project.
For example, on a $2 million project, you might get 1.5%, but on a 20 million project, you might get .5% of the revenue.
Commercial Sub-Contractors
Typically, they get paid similarly to the commercial renovation GC’s and the commission will depend on the deal size and profit margins.
The base could be between $50 and $100,000, and the commission could be between 1 and 3% of the revenue.
Overall, as a construction company, incentivize your salesmen to win projects and stick with your company for the long run.
Salespeople are driven to put numbers on the board, especially when you have the right incentives in place. Having uncapped commissions will keep them hungry.
With any commission structure, it's important to examine your company's cash flow and see how much you can afford to pay your team.
Figure out what makes sense for your company goals, revenue, and team specifically.
Understanding Your Market
The success of any startup relies heavily on understanding the market it operates in and identifying the ideal customers within that market. Understanding your customer and becoming a subject matter expert is key, especially at the formidable stages.
By having insight into potential customers, you know what problems you should be solving with your product and how to communicate in a way that appeals to them.
The market is the broader industry that you serve. The ideal customer dives deeper into who your product is the best fit to serve. It's a way to segment your customers.
You might not know who your product best serves yet, and that is okay, but it's important to hypothesize and test who is.
Make some assumptions about what would make a customer a good fit for your product and test those assumptions otherwise, use your current customer base and data to guide you.
Here are some of the key steps to understanding your market and identifying your ideal customers:
Understanding Your Market
1. Research industry trends and news: Stay updated on current and emerging trends in your industry. Search Google news, read articles and follow the right people on social media to gain insights into customer preferences and potential opportunities.
