Breaking Out of Your Delicate World
I know, that’s a crass subject line, rarely heard in the delicate world of interior design, where “selling” is considered by many designers (especially employees) to be “beneath” them.
And that’s what I don’t understand. It’s not that way for the man or woman who sells BMWs, or financial services, or even luxury goods like jewelry and watches. They all know that they can only eat what they kill, meaning their earnings are based in large part on commissions.
Think about what a commission really is. It’s a share of the gross sales. (It could even be based on net sales, but more about that when I discuss a concept called “open-book management” in the future.) It means that when the individual earning the commission does better, the company does better.
Which is why I absolutely love it when I encounter coaching clients who have designers on their team who are on commission! And yes, while not the norm, there are more than a few that work this way. Their designers have incentive to earn more, have no cap on what they might earn, and have a direct relationship to the overall success of the company! (And, more to the point, of the earnings of you, the principal.)
From a cost standpoint, commissions share one thing that you should strive to do in all areas of your company—convert a fixed costs to a variable cost. If you paid a designer, say, $75,000 a year, that’s a fixed cost and very hard to get rid of, even if business slumps.
But if that designer is paid, say, $55/hr for their time which you turn around and bill at $115, and they bill 80% of their time, the designer is happy because they’re earning $88,000 (instead of $75,000) and if they see a slack period coming up, they have incentive to contact former clients, accelerate current projects, and otherwise…sell!
You’re also happy, because with no increase in fixed overhead, you added $96,000 to your contribution margin, the difference between what you billed, and what you paid to the designer as commission.
Sure, you may want to create a hybrid structure with a small base or draw to give the designer some sense of stability, but the expression “eat what you kill” comes from the jungle, and no one promises the lion or the tiger a nice day’s meal. In fact if you think about it, other than humans and our domestic pets, just about every species wakes up every morning wondering if they will survive and sparing no effort toward that goal.
A commission-based compensation plan is even something you can implement with existing salaried employees. I generally recommend that such a program be a part of a bigger effort to bring your team members into an open-book philosophy (no, this doesn’t mean they have to know what you earn!) so that they see the potential advantages to the change.
Give this some thought to this concept, and pencil out some possible scenarios. Forty percent of time billings and forty percent of gross profit on merchandise sales (note the incentive to sell more stuff!) is a good place to start, but your plan will need to have what big companies call “goal congruence,” that is, does it lead to the behaviors you want? Watch out for unintended consequences which are the notorious byproduct of almost all incentive plans.
Every morning, lions, tigers, and design firm principals wake up knowing they can only eat what they kill. Why should your employees be any different? If they act squeamish, you can always say what my wife says to me when I don’t really want to do something: “Suck it up, Buttercup!”
If you have any experience with this concept, please leave a comment below.