How to Structure Your Sales Team Commissions for Success
There are many different types of sales jobs in the construction industry. It's important to know the type of sales rep you should hire and to incentivize them accordingly.
The pay structure will depend on the type of projects and product/service your sales rep is selling.
The size of the deal, the profitability of your projects, market rates, the ease of making sales, and other factors will impact the commission percentage.
As a construction company owner, it can be difficult to know what to pay your team to keep them incentivized.
Let’s explore different types of commission that could make sense for different sales areas.
In this blog we first cover some general guidelines and then jump into construction sales commission structures for each type of construction company.
General Guidelines for Setting Your Commission Structure.
The goal of setting the right commission structure is to find a win-win situation where your sales rep is incentivized and makes economic sense for the company.
To give you some baseline sense of how much to spend on sales and marketing, most companies spend between 10 - 30% of their profit or more on their marketing.
As long as your sales and marketing efforts bring in more than they cost, then its worth it.
It's important to note that you need to invest in your construction marketing and sales over time, and it takes time to see results.
Typically, the bigger the deal, the smaller the commission percentage, but the overall commission amount is higher. Margins are usually tighter on larger projects as well.
Sales reps who can manage and bring in big deals are very valuable.
Commercial sales reps tend to get more base pay than residential because they have longer sales cycles and more formal roles.
Rightfully so, smaller deals have a larger commission percentage.
Keep in mind that the better base you pay, the less you can pay in commissions and vice versa.
Its between you and your rep to decide and find that win/win.
The Quick & Dirty Commission Percentage Breakdown
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Timing of Commission Payments
Again, it's totally up to you how you structure it, but typically, we pay our sales reps according to the payment milestones of the projects they win.
That way, they are aligned with you to win good projects and take on good clients where we can complete the project quickly and get paid on time.
If you choose to pay them all of their commission upfront, you might able to pay them less as they would get access to their commissions quicker.
Some companies calculate and pay their commissions on a quarterly basis.
Base Salary vs. Commission
When structuring compensation for construction sales teams, one key consideration is the balance between base salary and commission.
Base Salary: A guaranteed income provides financial stability, attracting sales talent who prefer security. It's particularly useful in longer sales cycles or markets with fluctuating demand.
Commission: Offers strong performance incentives, motivating reps to close deals and boost their earnings. It's best suited for high-margin projects or where sales volumes can vary significantly.
Finding the Balance: A hybrid model, offering a modest base salary with commission, often works well, balancing security and incentive. The key is to align the structure with your company’s sales goals and the nature of the work.
Pros and Cons of a Completely Commission-Based Model vs. a Hybrid Model
Completely Commission-Based:
Pros:
- High motivation to close deals.
- Costs are directly tied to performance.
- Attracts driven, high-performing salespeople.
Cons:
- Income instability can lead to high turnover or lower quality talent
- Less appealing in markets with longer sales cycles.
- May encourage aggressive or short-term sales tactics.
- They can bring the deal to whoever pays the highest
Hybrid Model (Base Salary + Commission):
Pros:
- Provides financial stability while still incentivizing performance.
- Attracts a broader range of sales talent and encourages loyalty
- Retain your top performers by offering security and motivation.
Cons:
- Higher upfront costs for the company.
- You risk hiring the wrong rep sales rep
Residential Construction Commission Structures By Type
Residential Renovation & Home Services Commission Structure:
For areas of residential construction, I’ve seen companies that pay base and commission or solely commission. It can be less of a formal role in the residential construction world.
If you're looking to hire professional career salespeople, you may want to offer some base.
Offering a base will help you secure good talent and ensure they are committed to selling for you and you only.
If you are only offering commission, that sales rep could bring that deal to any construction company.
This can make sense if its a less formal role and your just looking for some referrals which seems to be popular among smaller companies.
If you offer just commission, the commission percentage will likely be higher, between 5% and 15% of revenue.
The base salary can range from $25 - 35/hr+ plus 2 - 10% of revenue.
Residential Roofing Sales:
When you're a roofing sales professional, you can get clients in many areas, including working on residential projects.
For residential, you might go door to door, hand out flyers, cold call, or hand out a list of hot leads daily.
Common ranges I’ve seen include 5-12% of gross sales or 25 - 50% of profit per job. These tend to be more commission-based only.
Understanding the 10/50/50 Commission Structure For Roofing
The 10/50/50 commission structure is a common model used in residential roofing sales. It involves allocating 10% of the gross profit to overhead, with the remaining 90% split evenly between the salesperson and the company (50/50).
Considerations: While the 10/50/50 model is easy to understand and implement, it's important to assess whether it aligns with your overall business goals. If your company handles diverse types of roofing projects, you may need to adapt the commission structure to ensure it's fair and motivating across different job types.
This structure can serve as a starting point, but it's crucial to continually evaluate its effectiveness and adjust it based on the specific needs of your business.
Single Family New Construction
New construction deals for single-family homes are typically much larger, especially if you sell luxury homes.
The margin on these projects is also tighter.
Sales reps are likely to get paid similarly to commercial construction sales reps with a $60 - $100,000 per year base and 1 - 1.5% of total revenue.
If you are doing commission only, the commission might be higher, between 3 - 5%
Residential Sub-Contractors
Typically, they get paid similarly to the residential renovation GCs, and the commission will depend on the deal size and profit margins.
The base could be between $50 and $100,000 per year, and the commission could be between 1 and 3% of the revenue.
If you are doing commission only, the commission might be higher, between 3 - 5%
Commercial Construction Commission Structures By Type
Commercial Renovation Construction Sales:
This is where the sales guys get paid more due to the value of each project, the longer sales cycles, and the more sophisticated customer base they will be selling to.
The commercial sales realm is more formal than residential. You need a higher-caliber salesperson who is trained in commercial construction sales.
These guys get a good base, normally 70-100k+ commission, which can be 1-3% of the total project or 10 - 20% of profit, depending on how heavy your base is.
Remember that the percentage of revenue might scale down with deal sizes.
Commercial construction sales jobs tend to have bigger opportunities, but the sales cycles are long, and it can take a while to land the projects that you bid for finally.
This is why they tend to have a heavier base than other construction sales jobs.
Commercial Roofing Sales:
When working on commercial projects, your team can get more significant projects and more repeat customers.
This is more profitable for the business owner and just like commercial renovation sales, this is a much more formal sale, meaning these guys should get paid more.
Again, I’ve seen people pay out their sales guys 5-12% of the gross sales, but in many cases, I’ve seen these guys have a base pay similar to the commercial renovation sales reps - between $60 - $100,000+
They add base pay here because they realize how much time it takes to break into a commercial account.
The jobs bring in more profit, and they can pay their guys less in the end than if it was only commission-based.
Commercial New Construction
Commercial new construction has some of the largest deal sizes
The margin on these projects can be much tighter, especially as you go behind the $5 - $10M range.
Sales reps are likely to get paid similarly to commercial construction sales reps with a $60 - $100,000 base and .25% - 1.5% of total revenue, typically scaling down the size of the project.
For example, on a $2 million project, you might get 1.5%, but on a 20 million project, you might get .5% of the revenue.
Commercial Sub-Contractors
Typically, they get paid similarly to the commercial renovation GC’s and the commission will depend on the deal size and profit margins.
The base could be between $50 and $100,000, and the commission could be between 1 and 3% of the revenue.
Overall, as a construction company, incentivize your salesmen to win projects and stick with your company for the long run.
Salespeople are driven to put numbers on the board, especially when you have the right incentives in place. Having uncapped commissions will keep them hungry.
With any commission structure, it's important to examine your company's cash flow and see how much you can afford to pay your team.
Figure out what makes sense for your company goals, revenue, and team specifically. To learn more about how to increase your construction sales go here, or reach out to our construction marketing consultant.
