Mike Andes and Speaker A examine Jennifer's pay package: salary, vehicle allowance, and 6% commission on gross sales. Mike argues commissions on top-line revenue encourage unprofitable deals. The company spends roughly 25% of total revenue on sales costs, raising questions about whether salespeople need to generate ten times their cost to justify the hire.
Her pay is a salary per week. I give her weekly vehicle allowance for using her vehicle and then it was initially started off at 6% gross sales. That she brings in? No, for the leads, even the leads that I would be paying for.
Cody's giving Jennifer a 6% commission of top-line revenue on all sales that she gets. I'm not a huge fan of this because if I just give a salesperson a percentage of top-line revenue, they aren't incentivized to make sure that that revenue is profitable. They're just incentivized to close the deal. But it doesn't even sound like that's happening right now. We're paying probably 12 to 15% of revenue going out to an admin person.
About a quarter. 25%? I think so. 25% of revenue is going to the sales. Yeah.
Well, there's all your profit. 25% of his revenue is going to Jennifer, who doesn't seem to be doing a lot in terms of sales, and he is somehow able to take that role on himself. He'd immediately be making 25% profit in the business. As a rule, As a rule of thumb, I typically want my salesperson to be bringing new business of at least 10 times what I have to pay them. Why? Because they are straight expense. If I pay them $50,000 for their whole year's worth of wages, I need to probably make $250,000 of revenue just to cover their wages, assuming I'm like, say, 20% profitable. And so if they're not making at least 10 times, like $500,000 in revenue for the business, what's the point of having them around?
