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How to give commision to your employees?

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kkompoti

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I am reading inside the forum of people that work for a company and take a comission per sale or a comission of the net profit.

Here we are all thinking of starting businesses that probably will turn to have more than 30-50 employees in different working areas (production , sales , marketing , accounting , management etc).

Now my questions.

How do you decide what kind of commision to give to the employees that you have?

For example: If a product goes for 10 dollars , 5 goes to expenses and then you give 1 to the salesperson, 1 to the one that produced the product and nothing to the marketing team and keep 3 dollars for the company?

What percentage is appropriate for production employees and what for salespersons?

Also , how can i calculate after how many products the company sells, the employees go from a steady salary to a steady salary plus bonuses?

and because i am a big believer of the american way of doing business, what is the way american businesses do to give commisions?
 

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kkompoti

kkompoti

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I dont want to be that guy but... if you haven't even started the business, why are you thinking about those problems?

Start selling first, then you can worry about salaries and things of that nature.

Just saying :)

i agree with what you are saying.

and my thoughts are going to that direction also.

I am now in the process of finding my first employee at the production of my product. and that is why i ask.

I believe strongly that this forum is all about giving value to its members. that is why i am asking this in here.

never had an employee. now that i am looking for my first one, i think i should start looking on how to manage him correctly.

In my country lots of employers sadly turn their business into their job,
because they only give minimum salaries to the employees and only that. no bonus . and that is why they cannot scale in my opinion.
Also due to that fact the employees have bad attitudes toward the business sometimes and most of the times they learn the system of the business, they make good relationships with producers and with retailers and then they go from the business, create a new one themselves with the old producers-retailers and their former employer goes out of job in some years after that.
 

devine

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Pay as much as necessary. Don't try to take advantage of people who are willing to work for little. People who know how to sell are not easily bought.
It's always better to pay 3x more to a person who will sell 10x more, than to have 10 idiots who increase your expenses on accounting, management and highly likely harm your company.
For example: If a product goes for 10 dollars , 5 goes to expenses and then you give 1 to the salesperson, 1 to the one that produced the product and nothing to the marketing team and keep 3 dollars for the company?
Look closer into this line.

5 - expenses.
It's 50% expenses from all products you sell.
From 500k revenue it's 250k expenses.
In my humble opinion, the key is in making expenses a part of event as much as possible, not a part of process.
Because this is how majority of companies work, until they can no longer sustain their profits on 50% of expenses, increasing them to 60%, 70%, 80%, until the company eventually bleeds to death.

It doesn't even matter if it's 50%, originally, or 20%. These 20% will become 80% sooner or later, if company doesn't learn how to make expenses a part of event, not a process.
 
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kkompoti

kkompoti

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the key is in making expenses a part of event as much as possible, not a part of process
can you help me understand this?

5 was an imaginary number
 

devine

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can you help me understand this?

5 was an imaginary number
It means that you pay once and profit long-term. And not pay each time you need a result.
i.e. it's better to shoot a video of your product, which will continuously get you customers, than to pay for PPC advertisment.

Disclaimer:
I'm not in any way trying to say that PPC shouldn't be used or that it's less effective.
 

OldFaithful

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@kkompoti if you are truly interested in the "American" way, then I'd suggest you spend some time reading a variety of business books. There is a great thread here with member recommendations for business & self help books. Use the search.

In general, the salesmen are typically the only employees that receive a commission...everyone else gets a regular rate. Usually an annual salary for the overhead personnel and an hourly rate for the direct labor. That being said, some businesses offer bonus incentives to any or all of their employees. Bonuses can be based on any metric imaginable.

At this point, if you're hiring you first employee and that is a salesman...then perhaps you should research the market and determine what competitive positions might be paying for that salesman. Then offer MORE to be able to get the best employee you can get. A rock-star salesman is well worth the extra pay. Just read some @Ubermensch threads.
 
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GoodShakers

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It means that you pay once and profit long-term. And not pay each time you need a result.
i.e. it's better to shoot a video of your product, which will continuously get you customers, than to pay for PPC advertisment.
Gold. I've always thought the number of businesses that don't understand this is shocking...
 

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How many have you sold?

Do you have a written sales process / script that you can put in the hands of your salesperson? Is it tried and true and you know how well it works and its hit rate?

Do you have a complete handle on your entire cost / profit structure?

If 'NO', then get to work in order.

When you do get ready to hire, just negotiate a commission per sale and be straight forward that it may change up or down as your cost structure comes into play. For example, you may add lead gen and qualified lead buying to your tool kit. So you would not be able to pay as much commission on those sales as they are 'prequalified' and have a higher hit rate.

The key is to get the salesperson to understand it is in their best interest for the company to make money and grow. If you cannot explain that to them from their point of view, you are not ready to hire them.
 
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kkompoti

kkompoti

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How many have you sold?

Do you have a written sales process / script that you can put in the hands of your salesperson? Is it tried and true and you know how well it works and its hit rate?

Do you have a complete handle on your entire cost / profit structure?

If 'NO', then get to work in order.

When you do get ready to hire, just negotiate a commission per sale and be straight forward that it may change up or down as your cost structure comes into play. For example, you may add lead gen and qualified lead buying to your tool kit. So you would not be able to pay as much commission on those sales as they are 'prequalified' and have a higher hit rate.

The key is to get the salesperson to understand it is in their best interest for the company to make money and grow. If you cannot explain that to them from their point of view, you are not ready to hire them.
i really enjoy the tough love in here! it makes me better!
that being said i will hire a guy to the production (honey) and the sales i do them myself.
i have sold some honey to people i know (not relatives - not friends - not collegues), they like my product.
I want to make the process of production in my own way. the thing is that bees can be keeped in a lot of different ways with also alot of different results in the honey production. i want to make my employee want to make more honey.

in order to make him follow my plan of production i have first of all to educate him, then make him do things my way, and then get the result i want.

if i just pay him 50 times a year X 50 euro = 2500 he wont do as i like for sure. i need to find a way to make him follow my plan so that the same beehives will be more productive. i thought if i could use commisions from the sales he would follow my plan.
example: one beehive makes around 12kg if stationary beekeeping, if you apply some husbandry methods, you can get around 20-25 kg. i am thinking base salary all the time for the employee and then if the production is in my standards he will get a precentage of the sales after the 12 kg mark.


for the written sales strategy i have none. i will do that also. thanks!

p.s. i am now working with a small factory to produce me, a small wooden box for my other ventrure, eggs. this is the product i have as a base.
http://www.ebay.com/itm/General-Store-Rustic-Wooden-Egg-Crate-Storage-Holder-Farmers-Market-Vintage-Gift-/272286364826

this box the 4 groceries stores i work with ,will put it somewhere next to the register machine.
no one else has it. i believe it will make my product more appealing to costumers.
 
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kkompoti

kkompoti

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if you are truly interested in the "American" way,
i am trully interested.
the way things are done in my country are counter productive.
Spend as little as you can and then make as more money as you can. That is the moto here.
For example: sheep industry: let your sheep graize as much as you can (with rain and snow most of the times), feed as little as you can , produce milk with non productive breeds because productive breeds cost more , take grands from the eu , spent as little as possible for medicine etc, and then go around and say "we are poor - the government doesn't help us", have a small flock only for what they and their family members can handle because employees mean money spent...
i think you get the picture!
 

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OldFaithful

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the way things are done in my country are counter productive.
Spend as little as you can and then make as more money as you can. That is the moto here.
What makes you think the US is any different??? The typical/average business here does that exact same thing!

It's only the exceptional that deviate.
 
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kkompoti

kkompoti

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What makes you think the US is any different???
it is because all the information i have found online is way better and to the right way of enterpreunerism than the information i find talking to greeks and finding online in greek sites.
also all of them(greeks) keep their process secret not for noone to learn because maybe someone will steal the "idea"! they put the event all over for people to "admire" though!

here in this forum you have the process well explained and documented. i have learned so many things this past three weeks i am a member for general enterpreunerism than i had in 5-7 years talking to real business owners.
for example lot of people in here talk about their process and not reveal the name of their business. that is perfectly fine and correct and a honest effort to help others.

i do not have a clue what real businesses do over there. i think they start good, they know all of these things, but deviate in order to make owners wrong expectations real. that is the start of the downhill for these companies.

also in here you find lots of exceptional business owners! one i am learning a lot of things right know is @AgainstAllOdds . the guy is on the right way!
 

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A previous company gave me as a salesperson 100% commission. As in, it cost $10, I made $10. In fact, they actually paid that out to us even if the customer didn't pay up front. So the customer pays $0, I make $10.

Can you guess why?

Because the Lifetime Customer Value (LCV) was far in excess of $10. It was a monthly (or yearly) billed service.

Before you go doling out commissions to anyone it's good if you know what your expected lifetime value will be per sale. If you make $3 profit off of an initial sale, but that customer on average will spend $1,000 over their lifetime, you have significant wiggle room in what you can pay your sales staff. Instead of giving them 10 cents profit off every 3 dollars you make you can give them $15 which is far in excess of what you'll make on the initial sale. You can hire better workers for better pay and know factually that you aren't losing money on the generous commissions.

In my case, the company made $0 in month one from my sale. They made maybe $1-2 in month two after expenses. And then every month after that they made $9.90 or whatever it was after server expenses for the 2.5 year average retention of the customer. So they company paid me $10 to make them something like $300. Assuming that customer never upgraded or required other services (which of course they did). Of course, I got paid nothing if the customer didn't stay 3 months (called commission claw-back in the sales industry).
 

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