The Bottomless Pit of 100% Commission Structures

For my first ever documented bourbon, I wanted to make sure I started out on a good note, so I picked one of my top 10 bourbons.

Blantons bourbon is personally one of my favorites, even though it catches a lot of flack online from the Bourbon snobs, I don't care- it's delicious!

Hard to get your hands on these days, a bottle goes for about $70-80 from a state store. It's just a matter of getting it before it runs out. We happen to have a guy on staff, Aaron, who works part time with the state store when he is not helping out in the shop at TruNorth. He even mentions how hard it is to get now, as they have a lottery for it!

I happened to get 8 bottles of Blantons about 6 years ago. I befriended someone in the state stores who told me what day the truck run was, and where the truck drops this specific bourbon off. He called me the morning it was due to show up, and I quickly got down there, then followed the truck to the other state stores and bought up as much as I could before I ran out of funds.

Being this product is so hard to get, many stores would only give me one bottle. This is what drove me to follow the truck till I got enough bottles to hold me over. Here we are 6 years later and I still have 3 bottles left!

This bottle pictured, is one of the Feb 2019 bottles, pre covid- very smooth with a sweet front, notes of citrus, vanilla, and oak to finish.

For my first ever Blog, I want to make sure I start out with something that became one of the foundational reasons I took the risk of buying my own business.

That reason was an overwhelming desire to escape an endless cycle of conflict that loomed within every job opportunity I stumbled across.

I have been working within the home improvement industry, specifically what's called "in-home" sales for 18 years now, and with every company I worked for, there was a trending theme.

Every one of these 100% commission companies utilize the same pay out structure. They train the same sales styles, and they teach the same principles that dictate who will get the calls, and who will sit at home for the day without pay. In almost every one of these massive companies, there was also a corporate buy out at some point in my time there.

So in every place I worked, whenever the PE takeover happened, the same scenario took place. It started with a rapid rise in company pricing. This caused a huge volume of "discounting" that affected commissions, as consumers were not willing to bear the burden of 20-30% price increases. This monstrous and sudden increase in pricing, while at the same time discounting back to original figures was intentional however, and over the course of the rest of this reading- you will be able to come to the conclusion of why these companies would manipulate pricing like this, why it would be so drastic, and how it would save the company millions in commission payouts.

In every one of these companies, the commission worked the same way. As I explain this method of getting paid, I challenge the reader to be thinking of ways that this can culturally affect a company and its people. What kind of environment would this create you think? Would it be healthy? Toxic? Based in kindness, or king of the hill? Would you want to work here?

If you read this blog and hate what you read, but you could make $200,000.00 a year doing this yourself, would you do it anyway? Would you enjoy this or would it eat at you over time?

So without further ado, here's how the layout works.

To comply with state laws, every company will come out with a price point that the sales rep can not "Go Over", or sell for higher than said price. Those prices make up the "Price book" all reps receive when they start with the company.

Lets make an example, for instance, lets say that the sales rep is selling HVAC and the customer needs a 3 ton Heat Pump and Air Handler.

Lets, for the sake of a simple example, say the price book said that "the company" could not sell a 16 seer 3 ton heat pump and air handler for more than $18,925.00

That is the ideal price that the company wants, and to be frank, in 2015 it was about 2 times more than the average company was selling product for, yet these were the general rates the company was trying to accomplish.

Now, if you were to sell the heat pump for that price, you would get a commission of 12% of the total. So let's say you walked in the door, talked to the customer, measured and took pics, decided 3 tons is the correct size and sat with the customer. Over the span of say an hour, convinced the customer that your company will do the best work- they agreed and signed the docs. You could be in and out of the house in about an hour and a half and make $2,200.00

But what if the customer DOESN'T want to spend almost $19k on a HVAC system?

This is where the company trains the salespeople in elaborate ways to "drop the price" through negotiating tactics.

Many of these tactics are well documented by famous people like Dave Sandler and even old school Zig Ziggler. Over the years companies have taken these sales psychology masters and morphed their programs into their own "one call closing" programs. These programs incorporate either high pressure sales techniques or objection overcoming language to entice decision making on the first visit.

For these companies it is CRUCIAL to "Close the Deal" on the first visit. The entire sales department thrives and strives to close every deal on the first visit, every single day.

So, for the sake of our example, let's say the customer is not agreeing to the original price. How far could the rep drop the price to "Close the Deal"? Well most places allow the reps to drop the pricing by as much as 40-50% depending on many factors revolving around how many install teams were without work the following day, or what the margins looked like the month before, or even the state of the company in its process of being sold.

I'll say this again ... .Most companies allowed us to drop the price as MUCH AS 40 to 50% off the book price without changing the scope of work whatsoever.

The drops are still similar to this day as they were 20 years ago, where dropping prices at the same time drops the commission rates.

So let's go back to our example. If the customer says no to $18,925.00 the rep can drop the price by 10% and his commission went from say 12% to 8%. This would take the price of the system down to $17,000.00 for a system the small companies were selling for $8-9k in 2014 and are selling for around $12-14k today. The rep however would now get $1,360.00 commission instead of $2,200.00

But what if the customer doesn't want to spend $17k?? Well… they would allow the rep to drop the price ANOTHER 10% and their commission would go from 8% to 4%. This would put the price of the system that WAS almost $19k now down to $15,300.00 and the rep who could have made $2,200.00 is now looking at making $613.00 in commission.

Not too bad if you can get it right? But what if the customer said, "no thanks" I don't want to spend 15k on a system I can buy from someone else for $9k.

Well the sales rep still has 20% they can drop….but at the cost of their commission as well of course. Where is the bottom in some of these cases?? I remember when I was the rep and in some companies I would wind up making 1% commission on a deal, just to get a job on the board. And this is where the PE firms knew they could recoup A LOT of money by raising the price! But lets keep going with the scenario for now.

So the system that was once almost $19k is now $12,262.00 and the rep is due to make $122.62 for his time in the house. We found this pricing was closer to what people would want to spend, but what if the customer doesn't want to spend $12k on a system?? What then?

This is where the executives stepped in and developed teams of inside sales reps, who work on an hourly rate with a small commission and they would call back behind the sales rep who clearly left the customers house without a deal and try to negotiate the pricing even lower, using scripts and management approved drops.

Those drops can get the pricing down by another 15% or more.

So now the system that started out at $18,925.00 and went down to $12,262.00 can go down even farther to $10,423.00 over the phone with a different sales rep.

Are we starting to see the inherent flaws in this system yet?

Would you like to be the person who is just trying to buy an HVAC system from the company you "trust" and being subjected to this process?

Would you like to be the sales rep who didn't get paid anything at all if you did NOT agree to buy via this method?

Would you like to run 3-4 of these calls a day. Where they are sometimes spread out over 30-40 miles apart. From 8am to sometimes 10 or 11pm, negotiating like the above example in every house you go into, always looking for the deals that hit at the highest numbers?

Would you like to be always concerned that if you do not bring back deals on at least 45% - 55% of the customers you see, you will be choked out of appointment the following days? Maybe seeing no appointment at all for the rest of the week? For the rest of the month?

How would you perform knowing that the reps who go home with NO sales for the day usually do not find themselves with appointments after a short period of time, as they are constantly being compared to other reps who can "One Call Close"?

Would your real competition be other hvac companies?…Or more likely the other 140 reps in the office that are potentially closing more deals in the home than you are, on the first visit, for higher prices.

Now imagine being a customer with 15 years of loyalty to the company, who has spent tens of thousands already in repairs or services outside of HVAC like plumbing or electrical, but you are not as good at arguing or distrusting the company's first price. Especially not as good as someone per se on the far reaches of the ever expanding territory, who do not see the trucks driving around every five minutes, but instead got a flyer in the mail and is giving the company its first opportunity to price out a project.

So who gets the better deal? The person who trusted the company and has been buying from them for 15 years and said yes to the first price, or the guy who knows nothing and already got 5 prices and loves to beat up sales people and found a way to negotiate the deal down by 50%?

I'm gathering at this point you are probably already to the conclusion I came to right? That this is not healthy, or even considering it not ethical.

Let's go a little deeper even…

Let's say you are an installer. A guy who wants to get his 40 hours a week, and works hard every day doing the same install projects to the best of his ability.

Your install work is impeccable, and the company provides you with everything you need to be the best you can be and deliver a fantastic end result yet every week it's a similar story.

On Monday you go to a home owned by an older widowed lady and perform an install, and at the end of the day you have to collect $18,925.00

Then Tuesday you get a call to go to an install on the opposite side of town for a guy who worked as an engineer for 20 years and loves to nit pick every ounce of work done in his home. At the end of a long day of being over scrutinized you get to collect $10,423.00 on the exact same project you did yesterday. Could you keep up the same self discipline to put in quality work after a week like that? After 10 years like that?

Ok, last example. Let's say you work in the call center for this major HVAC company and your Auntie wants to get her HVAC replaced. She is struggling after she has been going through chemo and she needs a break financially, but as all crashes come in threes, her system is down at the same time as the bills are due. You know all the sales reps, and you see all their numbers all day long. Who are you sending to the house?? The killer who gets the top deals every time? The rep who you know treats people the nicest? Do you have a choice? Do you call the company at all? What would it feel like to NOT call the company you work for all day because you are afraid of how your Aunt will be treated.

Would you believe me if I told you that I have had people who work at massive $100m HVAC companies call me personally and ask TruNorth to come out to their relatives' houses and treat them well because they do not like this process and fear their loved ones will be subjected to the above methods of procurement?

Can you imagine how it must feel to work for a place that you need financially but you do not trust emotionally?

Compound this with the sad fact that you know many of the 800+ people who work here have great attitudes and good hearts, who work hard and try their best every single day. Who go above and beyond in everything they do- yet this one design flaw in the business… This one aspect of the company is setting the stage for a situation you refuse to subject your family to.

This is why I left my $200k job to buy a bankrupted HVAC company in covid. Not because I wanted to get rich. Not because I thought I could do better even. No business plan, and no backing. Just one desire that pushed me over the edge.

I wanted to be free.

SO when it came to my time to build a commission structure, I knew what I had to do. To build something that put my reps in a position where even though they were in some cases sitting across the dining room table from their customers, they all felt like they were sitting on the same side. Now without revealing too much of the spice that makes the company pop - some TruNorth Rules

There is never a time where a TruNorth employee is in your home NOT getting paid.

There is never a time where a TruNorth reps loses commission percentage if they help the customer afford the project by offering a discount.

There is never a time where the rep can discount a job beyond the discounts advertised online or offered as standard (vet discount, first responder, senior citizens, Downingtown Alumni, ect)

There is never a time a rep can lose the privilege of working with a customer who is not ready to buy today to a rehash department or another rep as long as they show discipline in following up and maintaining contact. (So get ready for follow up calls if you get a price from us lol)

There is never a time where wanting a lower price gets you anything without a change in scope. No one gets a worse deal because they didn't haggle, and most of all…most importantly

No one loses a discount if they do not decide today.

TruNorth reps are paid bonuses on paperwork discipline more than any other factor. Can you upload all your pics from all your visits in the same day? Do all your drawings have the right measurements? The right notes? Did you promise the customer something and never write it down and never tell the install department?? Or have you shown you can do this perfectly for a month straight??

Should I not reward that behavior? Should I give huge bonuses to "close rate" or to self discipline? Which will grow the company more? The individual more? The team more? The "word of mouth" more???

Yet these ideas, as favorable as they sounded in my heart- were not typical. So over the years it took serious work finding the right people who could embrace this over the normal routine that entices so many sales reps into the dark rabbit hole of huge commission structures.

In most reps' eyes, NOT being able to make 12% is such a huge deterrent that they can care less about the other amenities. So finding the right "soul" was a bit of a challenge at first. Yet here we are. Up 1500% as a company since purchase.

With a marketing budget of 2% and a Payroll of over $1.8m - we seem to have a culture that I wouldn't want to trade for anything I found in the past.

"If only this thing existed while I was coming up" is what I find myself saying as I look at the younger staff members growing and learning and enjoying what God has built for us.

As an owner, I can no longer think like the salesmen of my past. There are so many factors to consider if I visit a customer's home, and in some ways that's progress, and in other ways that laser focus of the past is gone yet was crucial to why I am where I am now.

This is why TruNorth reps are meant to be honed in on an un-destractable idea. A single principle. A desire I built this whole business on.

"You can not sell everyone you visit every single day. You can't help everyone you visit every single day, but you can always teach one helpful thing to everyone you visit every single day. And if you do this every single day…. You will sell more than you ever imagined." - Ray Stubbs

If you made it this far I thank you, and I challenge you. Send a message to Rstubbs@trunorthhvac.com and in the body of the message put only this -"Chicken Sandwiches"

I thank you for being a customer, or a reader, or a competitor trying to destroy us every single day. God bless you all, for He allows the sun to rise on his friends and His enemies- not because He has to but because He loves us all.

Amen