Build Trust to Retain Exceptional Retail Sales Teams
Managing commissions is paramount to hiring and retaining an elite sales team that accelerates your company’s revenue. Thanks to technology, store managers can say goodbye to manual calculations and hello to automation. This ensures satisfaction as you incentivize your sales team.
In this article on commission management, we’ll cover key aspects such as automating calculations, splits between salespeople, unique considerations for home furnishings retailers, and commission adjustments. These aspects go far to make your sales team highly desirable for retail employment.
Calculating Commissions with Precision
A sales associate’s commission structure is essential to their compensation plans. Executing the correct payouts is imperative to building trust across sales organizations. Yet, combinations of products on a sales order and associated rules dictate the appropriate commission value. Given the multitude of factors behind a calculation, maintaining this manually is time-consuming and prone to error.
Leveraging a sophisticated retail POS system with inventory control automates commission management. Sales managers can build rules behind the scenes. Once set up, these rules will be automatically referenced each time an order is processed, ensuring efficiency, fairness, and transparency in compensation. Reporting by salespeople and store locations is imperative to track earnings and ensure appropriate paycheck values based on delivered business.
Factors within a Calculation
STORIS’ Point of Sale system allows sales managers to input commission structures by various factors and define an order of operations for when to use each rule.
- Sales Associate: Calculate based on the individual or the level of the sales associate. This can be a new hire, senior associate, sales manager, or any hierarchy defined. Retailers can add photos of salespeople to manage large teams across an organization, which is helpful for those better with faces than names.
- Customer Level: Commissions can vary based on the customer type, such as if the sale is for your average retail consumer, a business or contract account, interior designers, or even employees exercising their discount.
- Product Category: Does upholstery have more significant margin potential than appliances? Retailers can tailor commission rates by profitability to protect margins or encourage the sale of products with a high Gross Margin Return on Investment (GMROI) potential. When multiple categories are sold on the same order, each line item can be commissioned at a unique rate without extra effort.
- Matrices for Multiple Factors in Combination: A matrix can account for multiple factors in a single calculation by automatically referencing the matrix table.
The Math Behind Commissions
Retailers have options when determining how to calculate a commission optimally for their business. Commissions will be calculated based on delivered business.
- Percent of the Selling Price – The percentage is multiplied by the item’s price.
- Percent of Gross Profit Amount – The percentage is multiplied by the gross margin dollars.
- Variable Commission Rates Based on High/Low Gross Profit Amount – This strategy can encourage sales associates to sell products at higher margins vs. cutting prices or using deep discounts to close a sale. Using gross profit tiers puts this tactic into practice. Rates can be tailored accordingly by defining minimum, maximum, and gross profit ranges. Gross profit accounts for the cost of the piece vs. its selling price.
- Flat Dollar Amount – The commission is calculated based on a fixed dollar amount.
Motivating Sales Through Spiffs
Leveraging spiffs is a popular incentive option in the home furnishing industry. A spiff is a fixed dollar amount paid on top of a commission plan. Spiffs are usually added to encourage the sale of slow-moving or as-is pieces or to bolster sales performance during a promotional event. Retailers can also trigger spiffs when a product is sold above a price threshold to reward high performers.
Commission Attributes
Unique to Furniture & Appliance Retail Sales
Using a home furnishings industry Point of Sale is imperative when managing commissions,
as unique attributes of these sales can impact compensation plans.
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Upsell Services
Incentivize sales associates to add protection plans to each order or upsell delivery services such as white glove to significantly increase a retailer’s earnings.
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Special Orders
Because customizable products might not have a defined commission value, managers can easily add the commission rate on-the-fly.
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Vendor Rebates
If an appliance sale is eligible for a vendor rebate, potentially earning the retailer greater revenue, the commission can be adjusted accordingly.
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Financed Orders
Financing impacts when a retailer is fully paid for a sale. To protect cash flow, a commission rate adjustment on installment payments can balance this. Conversely, retailers holding their own paper may boost commission rates as they earn interest revenue.
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As-Is Products
Damages or scratch-and-dent pieces can hinder cash flow and take up storage space. Motivating sales associates to sell these products can improve inventory turnover on hard-to-move pieces.
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Hard and Soft Kits
Collection selling is popular in the home furnishings industry. Commission management for these more complex bundles can be easily defined to ensure accuracy in multi-component sales.
Facilitating Split Commissions for Collaborative Sales Efforts
A rising trend in retail businesses is the role of team selling, especially in the furniture sector, where big-ticket purchases may involve multiple stakeholders. This collaborative approach allows salespeople with specific category expertise to work together on an order. A manager may also be leveraged to close a particularly tough negotiation.
Another reason is simply that showrooms are open throughout the week, but a sales associate might not be present each time the customer comes to shop. Therefore, multiple sales associates can be instrumental in closing a deal.
Traditionally, managing split commissions can be cumbersome, requiring intricate calculations and manual adjustments. With a POS system, businesses can facilitate seamless collaboration and split commissions. In our mobile POS solution, a manager can easily associate multiple sales associates to an order. Commissions default to an even split, but the interface allows the manager to customize the split percentages up to 100% to reflect the individual’s effort. Being able to do this when writing the order ensures that each contributor receives their fair share while their involvement is top of mind. Split commissions encourage teamwork and foster a collaborative sales culture, ultimately driving higher sales performance and customer satisfaction
Agility in Commission Adjustments
Returns are a natural part of retailing. Therefore, commission adjustments may be necessary. Manual adjustments can be time-consuming and prone to errors, potentially leading to dissatisfaction among sales associates. However, with a tightly integrated POS system, businesses can make commission adjustments swiftly and accurately. This ensures that commissions align with actual sales performance.
Sophisticated Point of Sale solutions transform commission management in the furniture retail industry, offering unparalleled efficiency and accuracy. With STORIS’ mobile POS system, home furnishings retailers can orchestrate commission programs that promote highly profitable sales to increase their bottom-line performance and motivate sales associates to drive revenue performance.
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