The 10/50/50 sales commission structure is one heck of a play among roofing business owners. That’s why you need to master it to amp up your sales reps and stand up to the fiery competition and gold mine of “roofing sales.” According to TalkRoofing.com, the 10/50/50 split doesn’t take into consideration how much the salesperson does in the process after the sale. But that’s only the tip; the 10/50/50 iceberg is much bigger!
Grab a note and a pen as we dissect the 10/50/50 sales commission structure, why it’s broken, and how it can influence your salespeople.
How Does The 10/50/50 Split Work?
Igniteresult’s President – Jessica Stahl, explains that the 10/50/50 split is a tad more technical than your garden variety sales commission structures. It involves using 10% of the total sales revenue to reimburse overhead. Then the cost of materials and labor is deducted from the remaining 90%, and the net profit is equally shared between the salesperson and the company.
Let’s Do the Math!
“Try visualizing your best sales guy closing a $10000 deal with $5400 as the cost of materials and labor. To determine his commission, you’ll have to deduct 10% of that $10000 for overhead (that’s $1000). Then subtract your $5400 cost of materials from the remaining $9000. At this point, you’ll have $3600 as your net profit. The 10/50/50 sales commission structure requires you to pay your sales guy 50% of that $3600 as commission (that’s $1800), while the remaining 50% goes to the company.”
How Effective is the 10/50/50 Sales Commission Structure?
Most roofing business owners don’t realize that the 10/50/50 sales commission structure is only effective when they’re chasing storms. It’s almost as if it was designed for storm chasers!
That’s why the 10/50/50 split won’t work if you’re doing retail work or just channeling your marketing into one location. In that sense, most folks have this biased mindset about overheads. They’ve realized that there are no marketing costs in storm markets, so they try to take advantage of that to maximize their profits.
You’ll even see some roofers try to minimize the standard 10% overhead as much as possible. This is because they know that “minimized overhead” in the 10/50/50 sales commission structure allows for a larger profit margin. That’s the whole point of the 10/50/50 split! However, you’ll find that your overhead also includes expenses like training costs, the trucks shelled out or anything you do for the culture of your company. Basically, that’s similar to investing in your employees.
That’s why you need to understand the importance of overheads if you’re going to be considerate of your salespeople in your sales commission structure.
Why the 10/50/50 Structure Might Not Work in Some Companies
As we’ve discussed – To recruit the best talent to represent your brand, you must provide those incentives. However, avoid going after the recycled 1099 pool! Instead, take people from different trades and help them settle into your company. Only then can you make good sales reps out of them. Targeting professionals with a stable job history will be way better.
Nonetheless, there are a few conditions that come with recruiting professionals. It’s not the pay per se; it’s the fact that they want to find purpose and development in your company.
That’s why you need to invest in the culture of your company by doing activities like –
- Training
- Leadership development
- Mental health talks
- Seminars
In short, the activities you conduct for your company’s culture are why people will join and stay in your company. Imagine a salesperson that has just hit the $150,000 mark. At this point, what he’ll want more than money is good leadership and not a toxic sales culture. That’s why when we talk about the reasons why successful sales reps leave a company even with the 10/50/50 split, it’s most likely because of bad leadership and not the pay.
What’s the Best Alternative to the 10/50/50 Roofing Sales Commission Structure?
By now, you might wonder, “If it’s not 10/50/50, which commission structure should I use?“. Don’t fret; we’ll get to that.
As discussed above, the 10/50/50 sales commission structure works well when chasing storms. However, if you’re doing retail or insurance jobs, the best alternative would be to “Pay Off The Gross!” Unlike the 10/50/50 sales commission structure, this commission model is way easier for folks to understand.
Paying off the gross simply means taking sales commissions by dipping your hands directly into your company’s gross income. It’s pretty simple math, right? You just need to do it well to be profitable (this is where your P&L statement comes in). Whatever the case, the total commissions paid out should always be less than 12% of the company’s gross income.
Remember that employing this structure when working with rookie sales reps will be near impossible. In such cases, you can start your new sales reps at 7% of the company’s gross income. That way, you’ll have enough money to pay your trainers to train them.
According to Dr Jessica Stahl, a company’s true mark of success is when it hits that point where its total sales commissions easily fall under 12% of its gross income.
A Trick to Paying Your Gross
Owing to its simplicity, diving headfirst into the gross commission structure could have you ignorantly overpaying your sales guys.
If you want to keep track of your new sales reps’ growth and money flow, you can give them a 1% upgrade in commission for every preset revenue mark they hit. A structure like this is what we commonly call a career path. That’s because you’ll be starting your new recruits out as new sales reps, then they’ll be promoted to senior sales reps, then elite sales reps, etc.
In short, folks love the idea of getting a new title for every upgrade in commission. They love the idea of having a clear-cut criterion for when they will be at the next level. Sales reps without clear-cut goals tend to develop a kind of anxiety about their career path, which could affect their ability to keep people on the team. That’s why you must paint a clear and encouraging picture of their career path.
How to Handle Your SalesPeoples’ Objection on Job Profitability
You might have noticed that salespeople in roofing tend to have an objection in any conversation about the profitability of jobs. This is because they believe owners occasionally use these conversations as an excuse to not give them money. As a result, you need to have standards or a quota on the pricing of what your salespeople should sell.
As a roofing business owner, If you have set standards and a good sales manager reviewing their jobs and seeing why they’re not profitable, there’s no reason they can’t consistently hit preset profit margins. Even better, it won’t hurt to give rewards for upsells.
Be Selective on Recruitment and Partnerships
Especially when working with referrals, the hang-tough urge to take in every customer is very common among roofing companies in their startup phase. That’s why it’s cool that marketing allows roofing business owners to choose the customers they prefer to work with. That way, you can be more selective and profitable on jobs.
It’s the same with recruiting because, with solid recruitment systems, you get to select the best people to work for you. Suppose you’re employing the commission model where you account for more overhead by giving your employees stuff like Ipads, wrapped trucks, etc., that will require a very high cost on your part.
Ultimately, that’s part of the reason why the 10/50/50 sales commission structure is split, and it’s also all the reason you need to severely filter the people you allow into your company. You don’t want to found be giving incentives to perpetual underperformers now, do you?
Save Your Sales Team From Burnout
Part of the reasons for burnout in salespeople stems from psychological issues. When sales guys get burned out, it is usually because they’ve felt they’ve been pushing hard and are still not cared for as people. This is where your company’s culture does its magic!
One of the things you can do to reduce burnout is to create engagement in activities that are focused on investing in your salespeople. That’s why many people leave corporate sales jobs and go outside to more flexible sales roles. Every time a new sales rep comes into your company, you can have them fill out their goals for areas like –
- Financials
- Relationships
- Family
- Career Development
- Leadership Development, etc.
Understanding your employee’s goals will help you determine the right amount of flexibility to incorporate into their schedule. That way, you’re avoiding burnout by giving them more breathing space.
Your Team’s Welfare Takes Precedence!
Running a roofing business is not about getting those money bags alone💰! As you focus on earning, you should also be immersed in creating a business model that will be considerate to your sales reps.
Even the success of the 10/50/50 sales commission structure also depends on how well you’ve nurtured your relationship and welfare of your reps. So treat them with care and respect. Do you know something else about the “roofing sales commission structures” that wasn’t included here? Feel free to reach out or engage with this article.
If you enjoyed reading this, learning about the topic, and want to know more or make a move, contact us here at Hook Agency or you can book a free strategy call at Igniteresult.net.
