Hey, Adam, here at The Roof Strategist. Today, we’re going to talk about my favorite thing — Commissions.
Commissions, money, dough — the stuff you spend and maybe spend too much of. So, let’s jump in with everything you need to know about commissions. This information is for salespeople, owners, and everyone in between. I’m going to teach you how:
- Owners should pay their teams.
- Teams should expect to be paid.
- Salespeople can negotiate higher commissions as they perform.
Let’s dive in.
2 Types of Roofing Sales Commission Structures
First, we need to understand the two types of commission structures. We have commissions that are based on either:
- A percentage of sales
- A percentage of profit
Here’s the difference.
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Roofing Sales Commission Type #1: Percentage of Sales
Percentage of sales refers to the top-line numbers. I’m going to explain this in the example below, using round numbers. They’re rough estimates, not reflective of industry-standard norms. And keep in mind 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.
Example: I sell a $10,000 roof. That’s the contract price — a $10,000 contract. Percentage of sales will usually be somewhere in the 7 to 12% ballpark. Let’s say it’s 10%. In this case, there would be a $1,000 commission. Boom, a $1,000 commission off a $10,000 contract.
Why the range of percentages here? Two reasons:
- It depends on the roles and responsibilities of the sales rep.
- Commissions should be based on volume. Some companies will do tiered structures, starting everyone at 7% each month. As they accumulate their sales volume, that percentage goes up, and companies will backdate the commissions for the month.
Roofing Sales Commission Type #2: Percentage of Profits
For percentage-of-profit commissions, these numbers typically are between 30 and 50%. Now, if you’re a(n):
- Owner: I would recommend not paying 50%. The reason is that the company owns a tremendous amount of liability for that install. I’ve found that most companies end up underwater when they’re paying that higher commission. So, unless someone is a really, really high producer, I wouldn’t do it.
- Salesperson: You need to be focused on bringing in new business all the time when you’re paid by a percentage of sales. You need the highest amount of sales possible to earn your commission. That’s how you have to think with this structure because the salesperson is going to be in charge of one thing only — generating the new business by signing the contracts. After that, the job is usually passed off to a production team to meet with the adjuster. The labor order, actual production, and supplementing will be done by someone else.
So, if you’re getting paid on a percentage of gross sales, volume is what you need to chase. If you want to earn a $100,000 income, do the math. You would need to sell $1 million to earn $100,000.
How Percentage-of-Profit Commissions Work: Example
To show you how percentage-of-profit commissions work, I’m going to use that same $10,000 contract. Once you make that sale, most roofing companies will subtract what’s called an “overhead percent.”
That’s anywhere between 10 and 15%. That’s the cost of keeping the lights on at the office, paying the office staff, and covering liability insurance. It’s 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, admin staff, phone lines, the internet, marketing expenses, and more.
So, we’re going to subtract 10 to 15% for overhead. That’s standard and expected. If it’s 10% for overhead, that would be $1,000. Now, we’re down to $9,000.
From the $9,000, we’re going to have to cover all of our costs, including labor and materials, permits, and anything else associated with producing the roof. Let’s say all that costs $6,000 (again, we’re just using rough numbers here), we would be left with $3,000.
That’s a $3,000 profit.
So, out of that 30 to 50% range, I’m going to use 40% for this percent commission. That would be a $1,200 commission.
Which Roofing Sales Commission Structure Pays More?
Let’s compare what you’d make on a $10,000 contract if you were paid by a percentage of sales versus a percentage of profits.
|Percentage of Sales||Percentage of Profits|
You can see, based on the pay, that you’re more incentivized to sell higher profit jobs versus just bringing in new business.
Owners: If You’re Paying on a Percentage of Sales…
You need to remove 100% of the responsibility of production and supplementing from your salespeople. You need to keep them 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 falls on production in the supplementing department, whether that’s in house or outsourced. That lets salespeople continually focus on bringing in new business.
If you’re paying or earning this type of roofing sales commission, check out my Marketing Battle Pack for my turnkey marketing material. You can download it instantly, fill in your information, click Print, and start using it.
My marketing materials include my direct mail letters, my door hangers, and more. It’ll help you produce higher volumes and, therefore, earn more money. With the average commission being about $1,000, you’ll see about five times the return on your first sale.
Owners: If You’re Paying on a Percentage of Profit…
You need to make sure that your salespeople are selling profitable jobs and that:
- They’re not giving away deductibles.
- They’re upselling upgrades.
- They’re supplementing appropriately.
- They’re making sure that the right systems are in place.
If you’re paying or earning this type of roofing sales commission, you want to keep a close eye on those numbers.
This was the method I was paid by in the past, but I had no idea how any of this stuff works. So, I just sold and collected what I got until I got smart. 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.” Then, I learned how to sell smart and make sure that my jobs were profitable.
So, owners, if this is how you pay your team, you have to make sure they’re armed with the right information to sell, so they can sell high-profit jobs. If they are not, you need to make sure that your team is in place on the back end to ensure profitability. You don’t want a sales guy selling a $10,000 job that ends up costing $11,000 produce and puts you $1,000 in the hole — and then you have to pay a commission on top of that.
Now, that leads us to the next fun question for you salespeople.
Salespeople: How Do You Negotiate Higher Pay?
The answer is actually quite simple. You negotiate higher pay based on your commission structure. Any owner will be happy to pay you more when you produce more.
Here’s the number one thing you do NOT want to do, though. Do not say something like, “Hey, I deserve to be paid more. I’d like an increase from a 10 to 12% commission” or “Hey, I’ve been at 30% or 40%, and I want a higher commission.”
Don’t do that. You don’t deserve it in that way. You have to present it the right way. Put together some reasons that that owner should pay you more. When you produce, they’re happy to pay you more. What they’re not happy to do is pay more simply because you felt entitled enough to ask for more.
So, say something like this instead:
Hey, 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?
The chances are they’ll work with you when you put it that way because they make more money when you make more money. That’s a win-win way to approach the dialogue.
2 Roofing Sales Commission Negotiating Tips
When you’re ready to negotiate higher pay, here are a couple of helpful negotiating tips to keep in mind:
- Sit down with the owner and try to put together a big hairy sales goal: Talk to the owner and say, “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 backdate it, or maybe it’s a higher percentage of commissions after a certain point. There are ways to negotiate that.
- Negotiate a contingency: For example, you can say, “I would like to get paid an extra 2% on my commissions, so long as my performance exceeds $X. Historically, I’ve done $X per month.” Now, maybe that’s $100,000 a month because you’re a really strong salesperson. If you want to get to $150,000, you say, “If I stay above $100,000, we pay me that extra 2%.” That would be a way to negotiate that.
You can use this same approach for percentage of profit. You want to think about how you make that company money, so you say something like, “Can we do a 40% commission if I bring in jobs above and beyond our profit target?” If it’s a 33% profit target, you’d get a higher commission for anything over that.
I guarantee that, 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 the chances are you might get fired. But, if you do it right and you’re performing well, the owner will want to keep you around. 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, that’s how you approach those roofing sales commission negotiations. With that end goal in mind, I guarantee you will find common ground and a winning way to earn more. Plus, owners love seeing that initiative. It might even mean growing into a new role. You could say, “Hey, if I self-generate a lead, can we reduce the overhead?” There are different ways to negotiate this. Again, align those interests — I produce more, and you pay me more.
That’s everything that you need to know about commissions.
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Thanks for joining me, and I look forward to sharing more with you in the next blog.