How much does your company pay its salespeople? And is the pay based on salary, commission or a combination of both? How about benefits…what kind of insurance (if any) does your company offer? As important as these questions are, the bottom line is this:

How does your company’s pay and benefits package stack up against other yards—including the competition?

Learn the answers from the results of our just-completed

During May and June, 2010, LBM Journal conducted a reader survey aimed at answering key questions about sales compensation and benefits. The goal of the survey was to provide realworld benchmarks on these important metrics, to allow dealers to compare their pay/benefits packages with others—both nationally and regionally. Participation in the survey was stronger than ever—with a total of 160 respondents who completed the entire survey— which means the results are more accurate and meaningful than in prior studies. In addition, response was high enough, and distributed evenly enough across the U.S. that, for the first time, we’re able to share many results on a region-byregion basis. (For this study, the regional breakout is the same as it is for the regional editions of LBM Journal—Northeast, Southeast, Central and West.)

The distribution channel for lumber/building materials has changed dramatically since our previous studies in 2005 and 2007. Back then, one key challenge for many dealers was simply having enough salespeople on staff to write up the orders.

Today, after the residential housing market has essentially undergone a “reset,” the challenges are vastly different. Hundreds of locations have shut down as a result of the recent “great recession,” and LBM dealers—like their customers—are feeling their way through what observers have termed “the new normal.”The result: for many dealers, this has meant going back to the basics and re-examining everything about how they do business. And few things are as fundamental as how a company compensates its sales force.

The amount of annual compensation is just the tip of the iceberg. A much more complete picture includes how a look at how the pay is structured, what benefits are offered, and how these two elements work together to create a complete package. That’s exactly what we’ve attempted to do with this year’s study. I hope you find the information that follows useful in your business.

Who We Studied

Before looking at the compensation figures, it’s important to examine the makeup of the companies who participated in the study. As in our two prior studies, we focused on full-line lumber/building material dealers and specialty dealers/distributors (ie, window/door, or roofing/siding dealers). As expected, overall revenues have shifted significantly downward. In this year’s study, a full 57% of participants reported 2009 revenues of less than $15 million. That’s a sharp decrease in revenues from our 2007 study, in which fewer than 40% reported overall revenues in the same range.

Another significant shift from 2007 to 2010 occurred in the category of customers served. We asked, “Which of the following customer groups are primary markets for your firm?” (CHART 1) Considering the slumping new construction market, it was no surprise that three customer groups—Remodelers, Commercial/ Industrial Accounts, and Consumers/ DIYers—showed sharp gains. Indeed, just 46% of respondents to our 2007 survey named remodelers as a primary customer group. In 2010, that number spiked to 81%.

The increases for Commercial/Industrial and Consumers/DIYers had similar increases—from 31% to 63%, and 32% to 57%, respectively.

When asked which areas salespeople specialize in, the numbers didn’t change dramatically from the 2007 survey. The three areas that ranked highest were Windows/ Doors/Exterior Trim at 88%, Exterior Products (roofing, siding, trim and decking/fencing) at 79% and Framing Lumber/Engineered Wood at 78.7%.

Insurance and Other Perks

This is the first time we’ve asked questions about benefits as part of this survey, so we’re unable to compare the answers to prior years. But due to the importance of these factors to LBM dealers and their employees, these questions will be standard in all future Sales Compensation and Benefits Surveys that LBM Journal conducts.

HEALTH INSURANCE

Even as the cost of health care continues to far outpace inflation, the majority of respondents offer health insurance coverage to their full-time employees. Nationally, 87% of respondents offer health insurance coverage to full-timers, while 7% also offer it to part-timers, and 6% do not offer insurance to any employees. These numbers varied slightly from region to region. The sharpest contrasts were between respondents in the Northeast and Southeast.

In the Northeast, 100% of respondents offer health insurance (89% to full-timers only, 11% to part-timers as well). In the Southeast, 83% of respondents offer this benefit (80% to full-timers, 3% to parttimers as well), while 17% do not offer health insurance.

Making health insurance coverage available is only part of the story. For those who offer coverage, we asked, “What percentage of the Health Insurance premium does your company pay?” (CHART 2) Nationally, 12.9% of respondents’ companies pay 100% of the premium and 3.2% pay less than 20% of the premium. The majority of companies pay somewhere in between. More than half of respondents (52%) pay between 40% and 80% of the premium. With the high cost and complexity of health care, there seems to be an infinite number of variations on how dealers manage this expensive benefit.

For example, one respondent pays 90% for employees and 50% for their dependents, while another pays 75% of the employee-only coverage, and the employee is asked to cover 100% of the cost for dependents. A number of respondents commented that their companies offer a range of health insurance packages. One noted that they pay 100% of the employee-only base plan; employees contribute if they want to “buy up” to better coverage.

DENTAL INSURANCE

Another popular perk, more than two-thirds of respondents offer dental coverage (61% to full-timers only, and 7% to part-timers as well). About the same number of respondents’ companies pay the full premium (11%), but that’s where the similarities with the health care coverage responses end.

Nearly one-third of respondents who offer dental insurance (30.4%) pay less than 20% of the premium, while about one in five (19%) cover 50% of the premium. Several comments for this question emphasized that dental coverage is offered as an option, with some companies enabling employees to pay the premium on a pre-tax basis.

401(K) OR OTHER RETIREMENT PLAN

The last perk included in our survey was regarding retirement plans. As with both health and dental insurance, the majority of respondents nationwide (89% total: 75% to full-timers only, and 14% to part-timers, too) do offer a 401(k) or other retirement plan to employees.

As with health insurance, there were distinct differences from region to region— most notably between the Northeast and Southeast. In the Northeast, 96% of respondents offer a retirement plan (66% to full-timers only, and 30% to part-timers as well). Just 4% of respondents in the Northeast do not offer a 401(k) or other retirement plan. About the same share of respondents from the Southeast offer this benefit to full-timers only (68%), but only 13% offer it to parttimers as well. At 19%, the Southeast had the largest percentage of respondents who don’t currently offer a retirement plan to employees.

While most respondents offer some kind of retirement plan, more than half (55%) match less than 20% of the employees’ contribution; one in five (22%) do not contribute any funds. Considering the unprecedented challenges our industry is currently facing as we dig out from the great recession, this wasn’t surprising. “We have suspended the company match until sales and profits improve,”wrote one dealer. For companies that do contribute, there are an infinite number of ways to determine the amount of the contribution. Here are a couple of examples:

“We’ve given anywhere from 2.25% to 5%, depending on company year-end profits. Company has no mandatory match.”

“Our 401(k) plan is non-match. Our profit sharing plan is 100% company-funded based on net income each year.”

“We have in the past provided a match and intend to reinstate that match as the economic recovery improves.”

Compensation on Installed Sales

As LBM dealers continue looking for opportunities to grow their sales and margins, a growing number are turning to installed sales. Nearly half of respondents (47%) report selling some products on an installed basis. Since installed sales is fundamentally different from selling materials alone,companies often base compensation for installed sales differently than sales of product alone. We asked the companies who do sell some products installed how they compensate salespeople for the labor portion of their installation business (CHART 3). A full 41% of respondents report that they don’t compensate salespeople for the labor portion of installed sales. Of those who do pay salespeople for the labor portion, those who pay on gross profit outnumber those who pay on gross revenue just over 4 to 1 (43.5% vs 10. 2%).

Sales Training and Improvement

For the vast majority of our respondents, sales training did not represent a significant line item in 2009 (CHART 4). Just over 60% reported that their company spent less than .25% of overall revenues on sales training. Eighteen percent of respondents reported that their companies invested between .25% and .49% on improving their salespeople’s selling skills. As this is the first time we’ve asked this question as part of this study, it will be interesting to see how these numbers trend as the economy recovers and the homebuilding industry strengthens.

Salary vs. Commission for Outside/Field Salespeople

For most of our subscribers, the following questions are where the rubber meets the road. After all, how much dealers compensate their outside salespeople—and how the pay is determined—can be fundamental to a company’s success. As with most questions on this year’s survey, the answers shifted a bit from 2007. One thing that didn’t change was the focus on commission-based pay. Only 14% of respondents reported paying their outside salespeople by salary or wages only. A full 80% use some kind of commission structure, with 26% paying straight commission, 19% paying more than 50% in commissions and the rest in salary and wages, and 35% paying more than half in salary and the balance in commissions (CHART 5).

Basis for, and Adjustments to, Commissions

Just as there are an unlimited number of options to combine salary and commission elements into a pay package, there are many different methods on which to base commissions. For those respondents who do pay commissions, 23% base them on a straight percentage of gross profit dollars. But as you’ll see from CHART 6 (next page), there was no single dominant basis for figuring commissions. The simplest way of calculating commissions (straight % of gross sales dollars) and one of the most complex (variable percentage of gross profit dollars based on gross margin) each generated a 15% response. Clearly, dealers focus less on what’s simple or complicated, and more on what method they believe will generate the most sales.

There were several distinct regional differences. In the Northeast, more respondents (25%) pay based on variable percentage of gross profit dollars than any other.

In both the Southeast and West, more than one-third (34%) of respondents pay commissions based on a straight percentage of gross profit dollars. That was also the number one method of determining commissions in the Central region, though the percent dipped slightly to 28% in the Central region.

When commissions are paid is another variable included in our survey. Nearly 2/3 (62%) don’t wait until payment is received, paying instead when the sale is generated, leaving 38% that pay on sales collected. There are pluses and minuses to both methods. Paying when the sale is generated can allow the salesperson to focus more on making the next sale—instead of waiting for customers to pay. However, paying on sales collected helps keep the salesperson focused on the big picture—not just making the sale, but also working to ensure that payment is received promptly. While the percentages varied somewhat, the majority of dealers in each of our four regions pay on sales generated.

Just because most respondents pay on sales rather than receipts, that doesn’t mean they’re not focused on collecting moneys owed. In fact, more than 2/3 (68%) of respondents report that outside salespeople are actively involved in collection efforts. While nearly half of respondents (47%) reduce commissions due to bad debt writeoffs, fully 40% answered that “bad debt write-offs don’t affect our salespeople.”If bad debts are eventually collected, only 28% of respondents reimburse salespeople for commissions that had been deducted.

In addition to bad debts, there are a number of other reasons that dealers make adjustments to sales commissions. As you’ll see in (CHART 7), in-stock material returns top the list.

High, Low and Average Pay for Outside Salespeople

AVERAGE:

As expected, our survey showed that the average outside salesperson earned less in 2009 than in 2006 (from our 2007 study). Not counting bonuses, perks or insurance, the average outside salesperson earned $58,503 in 2009. Nationally, that represents a decrease of almost 14% from the 2006 average of $67,802. Here’s how the average pay for outside salespeople stacked up region by region:

Likewise, the average value of bonuses and perks declined nationally as well, from $11,192 in 2006 to $7,706 in our latest study. Combined, the average pay and benefits for outside salespeople in 2009 was $66,209, a drop of just over 16% from the 2006 average of $78,994. Indeed, considering that 2006 represented a peak in the homebuilding market, and 2009 was one of the lowest years on record, this drop in compensation is less than it could have been.

HIGHEST:

Nationally, the highest paid outside salesperson (including bonuses, perks and insurance) averaged $80,227. This represented a significant, though not unexpected, plunge from 2006, where the average was $149,195 ($125,805 in compensation and an additional $23,390 in bonuses and perks).

By any measure, this drop of more than 46% is massive; but it is important to keep in mind how much the homebuilding market declined in that time frame. According to the U.S. Census Bureau, there were a total of 1,465,000 single- family homes started in 2006. In 2009, the total sank to 445,000 starts— a drop of nearly 70%.

LOWEST:

Including bonuses, perks and insurance, the average response to the question, “How much did you pay your lowest-paid outside salesperson in 2009, was $42,082. The regional trends seen above for average and highest paid carry through here as well:

Average Pay for Top People in Other Positions

While the primary focus of this survey was on salespeople, we also aimed to provide general benchmarks for a number of other positions common to LBM operations. As with the results for salespeople, there were variations by region. The numbers reported here are national averages. Here’s how the question was asked: “Please provide the total earnings (including bonuses, perks and insurance) your company paid to the TOP PERSON in each of the following departments/ positions. Note: since the highest and lowest numbers can skew the results, those figures were not included in the averages shown below.

Average Pay for Other Positions

Depending on the size of the company, nearly all successful LBM operations require a variety of associates with an assortment of skills and responsibilities. Again, the figures below represent national averages, and do include bonuses, perks and insurance.

Here are the average compensation levels that respondents reported for the following positions (again, to ensure the most accurate results, the highest and lowest responses were not included in these averages):

NOTE:

Considering the rapid rate of change our industry is experiencing, combined with the importance of the information in this study, LBM Journal is committed to conducting this study each year for the next several years.

The complete results of this survey, including all questions and answers, and regional breakouts for many of the questions, may be ordered from LBM Journal for $349 + $10 shipping. Dealers who participated in the study may purchase the complete report for $149 +$10 shipping.

If you’re interested in purchasing the results, or would like to be invited to participate in our 2011 study, please email Melissa@LBMJournal.com or call 952. 898.2527.