Roofing Sales Commissions: The 2 Different Pay Plans in the Roofing Sales Industry

Welcome to another video. This is Adam here, the roof strategist. We are talking about my favorite thing, which is commissions. Commissions, money dough. The stuff you spend. But you probably spend too much and you should reel it back. By the way, read the book profit first. It'll change your life. Alright, let's jump in commissions. Everything you need to know. This video is for salespeople, owners and everyone in between. I'm going to teach you how owners should pay their team, how teams should expect to be paid, and as a salesperson, how you can negotiate higher commissions as you perform. Jump right in. First and foremost, we want to understand the two types of commission structure. I've touched on these in the past in different videos. So we have a percentage of sales. Okay, so that's the first model. And then we have a percentage of profit. Okay, so what's the difference? Percentage of sales is top line numbers. Example, I sell a $10,000 roof. I'm going to be using round numbers. By the way, this, they're rough. They're not reflective of industry standard norms. These norms are different based on the market, the industry and the profit margin expectations per company. So we're just going to use some random rough numbers here. Okay, $10,000 sales. So that's the contract price. $10,000 contract percentage of sales will usually be somewhere in the 7 to 12% ballpark. Now, owners, why the range? Two reasons. One, depending on the roles and responsibilities of that sales rep. And number two, should be based on Vol. Some companies will do tiered structures. Well, everyone starts each month at 7%. But as they accumulate their sales volume, the percentage goes up and then they'll backdate the commissions for the month. Okay, so there's a reason. So 7 to 12%. I'm going to use 10% for this because I suck at math and I will butcher it on the fly. So this would be a $1,000 commission. Okay, boom. $1,000 commission off $10,000 contract. Then we have percentage of profit. These numbers typically are between 30 to 50%. Okay. Now owners out there, I typically avoid paying 50%. The reason being the company owns a tremendous amount of liability for that install. And I have found that most companies end up underwater when they're paying that high a commission. So unless someone is a really, really high producer, I wouldn't do it as a salesperson. Here's what you need to think about. When I am on a percentage of sales, I need to be focused on bringing in new business all the time. That is my number one role. I need the Highest amount of sales possible to earn my commission. That's how you got to think. Typically with this structure here, the salesperson is going to be in charge of one thing only, which is generating the new business, signing the contracts. After that, the job is usually passed off to a production team to meet with the adjuster sometimes, but at least from there, from production. Production is handled by a production team. Order form, labor order, and actual production and supplementing will be done by someone else. So owners, that's what you need to focus on. Sales guys getting paid like this, that's what you need to focus on. If I'm getting paid on a percentage of gross sales volume is what you need to chase $100,000 income. Do the math. Million dollars in sales, earn 100 grand. Okay, now, percentage of profit. We use $10,000 contract. And I'm going to show you how the industry works. Most roofing companies will subtract what's called an overhead percent. That's anywhere between 10 and 15%. That is the cost for keeping the lights on at the office, for the office staff, for liability insurance, for all the really unfun things that a business owner has to pay for to keep the doors open. Everything down to the Internet bill, the office admin staff, the phone lines, the Internet, all that stuff. Marketing expenses. So we are going to subtract. And by the way, I'm not actually going to do this math, but we're going to subtract 10 to 15. Oops. 10 to 15% overhead. That is standard and expected. So out of that. Alright, here I am, I'm doing it. So 10% overhead be a thousand bucks. So we're down to $9,000. Okay, follow. So that goes to the office to cover everything from this new number, the 9,000 minus the office, we're going to have all of our costs which include labor and material. Okay, labor and material is the cost plus permits, anything like that. Permits anything associated with producing the roof. From this number, we're going to subtract that. For this sake, we're going to call it 6,000. Okay, again, just rough numbers here. That leaves us with. Is that 3,000, right? 6. Nope, hold on. 9. Yeah. $3,000 profit. Okay, so out of that 30 to 50%, I'm going to use 40% for this one. 40% commission is a $1,200 commission. So I'm going to circle these 1,200 bucks for a $10,000 job versus 1,000 bucks off the top, same job. Now, based on the differences, you will see that this is more incentivized to sell higher profit jobs versus just bringing in new business. So for an owner, if you are paying salespeople on a percentage of sales, you need to remove 100% of the responsibility of production and supplementing to keep him or her focused on bringing in new business. You cannot expect them to worry about selling profitable jobs because that's not their job. The job to increase profitability is production in the supplementing department, whether that's in house or outsourced, so they can continually focus on bringing in new business salespeople. If this is you, you need to check out my roofing sales accelerator marketing pack. It's my turnkey marketing material. There's a link in the description you download, you click print, you fill in your information you'll be using. Excuse me, you want to fill in your information before clicking print and you can start using my marketing material, my direct mail letters, my door hangers, all that stuff right away. Okay? So that will help you produce higher volume and therefore earn more money. Average commissions can be about 1,000 bucks. You're going to see about a five times return on your first sale, by the way. So, all right, now onto this, owners, if you have people that are selling on a percentage of profit, you need to make sure that they are selling profitable jobs. They are not giving away deductibles, they are upselling upgrades, they are supplementing appropriately and they're making sure that the right systems are in place. So if this is you, Mr. Salesperson or owner, you want to make sure that you have a close eye on those numbers. Now I was paid in this method, but I had no idea how this stuff worked. So I just sold and collected what I collected until I got smart and I started to ask my owner, hey, what's the average percent for material labor? I want to start pre calculating my cost per square so I can kind of reverse engineer the commissions that I can expect. And then I learned how to sell smart and make sure that my jobs were profitable. So. So owners, if your team is doing this, you've got to make sure they're armed with the right information to sell high profit jobs if they're not. Owners, you need to make sure that your team is in place on the back end to ensure profitability. So you don't sell a $10,000 job that costs $11,000 to produce and you're $1,000 in the hole and then paying commission on top of it. So this leads us to the next fun question for you salespeople. How do you negotiate higher pay? The answer is quite simple. Depending on what commission structure you're at, any owner will be happy to pay you more when you produce more. Here's the number one. Do not do, okay? Do not do this. Do not say, hey, I deserve to be paid more. I'd like an increase from a 10 to 12% commission. Don't do that, okay? You don't deserve it in that way. Now, in your mind you might, but I'm going to show you how to present it the right way. Same thing. You don't say, hey, I've been at 30% or 40%. I want a higher commission. Put together some reasons that that owner should pay you more when you produce. Well, they're happy to pay you more. What they're not happy to do is, you know, maybe they'll feel like you're entitled by asking. So if you say, hey, listen, I have produced X to date and I'd like to make a big push, can we put together some incentives in a bonus plan to get there? And chances are they'll work with you because by you making more money, they make more money. So you want to approach the dialogue in a win win. Now, I'm going to give you two negotiating tips. One is to sit down with the owner and see if you can put together a big hairy sales goal. Like, hey, if I get to 1.5 million, can we put together an incentive structure? I want to do a big push, but I'd love to see if we can do a bonus that aligns for both of us. So if I win, you win, Everybody wins. Figure out what that is. Maybe it's a big check at the end of the year to back date it. Maybe it's a higher percentage of commissions after a certain point. But there's ways to negotiate that. Okay, number two is to negotiate a contingency, meaning would like to get paid an extra 2% on my commissions so long as my performance exceeds X dollar amount. So you can say, listen, historically I've done X amount per month. Maybe it's a hundred thousand dollars a month. You're a really strong salesperson, and if you want to get to 150, you say, if I stay above 100,000, will you pay me that extra 2%? So that would be a way to negotiate it. Now on the percentage of profit, same thing, same approach. You want to think about how you make that company money. So imagine this. Say, listen, can we do a 40% commission? But if I bring in jobs above and beyond our profit target, let's say it's a 33% profit target, then you get a higher commission. Number two, volume. If I get to a high volume of sales then I'd like a higher hit of commission. And the other way again is a year end bonus to say hey at the end of the season if I hit this target, can we back date it? But what I will guarantee you is this. If you are not producing and you ask for more money, you're going to put a bad taste in the owner's mouth and chances are you might get fired. But if you do it right and you are performing well, an owner wants to keep you around and if you are performing at a high rate and you are hands off for the company, they will want to pay you more to stick around. So approach that negotiation with that end goal in mind and I guarantee you you will find a common ground in a winning way to earn more. And owners love seeing that initiative. It might even mean growing into a new role or bringing in, you know, even for this way you could say hey if I self generate a can we reduce the overhead? There are different ways to negotiate this again that align those interests to say I produce more and you pay me more. So this is everything you need to know about commissions. If you have any questions, please drop them in the comments. Click like subscribe if you haven't already. I've got new videos coming your way every Tuesday at 7am Mountain time. Owners, if you are hiring a sales team I want you to click show more in the video description at the way. Bottom you're going to see a section that says for owners only. Inside that you're going to find turnkey hiring ads and some recruiting assets that I've developed tested across the country and Canada. They're super helpful for you salespeople and owners. Check out my roofing Sales Accelerator Marketing pack. It's a bundle of marketing material that I've developed and tested. It is designed to be very rudimentary on purpose because you know those little door hangers that people hang, a homeowner will see it and his marketing material and it goes in the trash without even being looked at. But when you print it out on plain white paper, you, you fold it up, you put your business card inside and you hang it on there. Wouldn't you be curious what's inside? So the homeowners have a higher likelihood of grabbing that off the door and actually opening it, which is the first action step of them reading your information. Same with my direct mail, letter, hand address, hand stamp sent it sent in the mail to that specific address. By the way, you can watch my under the radar sales letter or, excuse me, under the radar sales practice. We'll put a link to that as well and that'll teach you that method. So hope this helped. Drop those comments. Check out that material. We'll see you guys in the next one.