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How Should I Pay My Rental Sales Reps?

Paying sales reps has always been an issue in the rental industry. The variety of formats are as numerous as the number of rental companies. I'll review some of the more common pay structures and the pros and cons of each. No structure is perfect for all. Hopefully you can pull something from this tip that will allow you to build the right program for your company.

Base and Commission

One of the most common pay structures in the rental industry. The aggressiveness of ownership or management dictates the size of base and commission percentage.
The best way to determine your base and commission percentage is working backwards from your desired sales rep remuneration.
Let's say you want to pay your sales rep around $100,000 and their territory should bring in $3M in revenue.
For an aggressive sales rep you could go with a base of $2000/month and commission of 2.5%. Annually that would be $24,000 base plus $75,000 commission for a total of $99,000.
A less aggressive example would be a base of $4450/month and commission of 1.5% or $45,000 potential for a total pay of $98,400.

Straight Salary

This is not as common in rentals, but is a fit for sales reps that are long term and proven reps with a solid base of customers and loyalty to the company. As opposed to variable pay with a commission structure, you are paying that rep the same in good times and bad. You are not flexing with your companies revenue. There are reps that don't want to roller coaster with the economy and see a straight salary as their best option.

Straight Salary with Bonus

In between base with commission and straight salary is salary with bonus. Simple math of performance based bonus paid on achieving targets. You can pay on monthly, quarterly or annual basis. The most common metric used is revenue, but you can also pay bonuses based on numbers of calls, new accounts or new/used sales. Or even a combination of several metrics.

If you have a safety based culture in your company (which you should ... see future TIPS) you can base bonus on safety metrics. Driving record, safety training sales, tool box talks, even safety walk-arounds on sales vehicle.

Other factors to consider:

- Commissions on revenue streams other than rental revenue. If you want to drive sales on items like consumables or damage waiver, pay a higher commission on those items. You know you have more margin available, get your reps to push it more. Do you need to liquidate older fleet? Bump up the commission on specific high houred pieces.

- When to pay commission? Should you pay at invoice? Or should you pay when the company gets paid? Keep this in mind, you hate to have to claw back a commission on some bad debt (or eat it as most people do).

- Do you want to reward higher rental rates? Consider a tiered commission structure. If the rep gets 90% of book rate they may get a 2.5% commission. If 80-89% the commission drops to 2%. Under 80% only 1%. Some rental companies have even dropped commission all together if discount goes too low.

NOTE: If you decide to try this structure make sure to the "secret discounts" are considered. Free freight, extra set up days, free fuel should be watched to make sure they are not substituted for discount.

- Commissions for other employees. You all know outside sales reps get the customer, but the counter, drivers and in some cases mechanics keep them. Some rental houses pool a smaller commission and split it among certain staff. This allows you to pay your a people a bit more when they are working harder. (Counter reps .... you can buy me a beer if your owner/manager starts doing this!)

No matter what structure you decide on, make sure it fits your company and the type of sales rep you want representing your company. If you believe in having a sales rep "Eat what they kill" then you want a small base and big commission. If you believe in "slow and steady wins the race" then go with a straight base. If you have an initiative you are trying to achieve (sell more sandpaper or propane) then use a salary with performance bonus.

One additional tip is to always discuss the structure with your sales rep. Set expectations together annually and I always recommend putting it in writing. It makes both of you more comfortable.

I hope to see you all at the ARA in Orlando or the CRA Prairie show in Edmonton. I'd love to show you some new lines I've picked up.

CRA is March 11th at the Expo Centre in Edmonton.

Together, let's make our industry better.


JimBo