 Tom here from Orange Systems and we're gonna talk about sales. Well, very specifically how we take care of our sales people How we do the margins on and how we pay them This is a popular topic amongst the tech world because well There's different methodologies and I'm gonna talk about the one that works for us now I will preface this of course with we are an IT company. We're an IT company that does a lot of projects We do a lot of projects with other internal IT companies or IT staff And we also do what they refer to as managed service providing or MSP work So we provide, you know managed services for Companies to take care of their computers and technology because of that This is the reason why we adopted the sales model. This may not work for every industry But I'm gonna tell you why I think it works for me You may have a different opinion of this but at least share with you how we do it because a lot of people You know, I think this is gonna be a good start and if you're looking for a methodology I'm just want to share some knowledge and show you how we do it, but first if you'd like to learn more about me Or my company head over to Lawrence systems comm if you'd like to hire short project There's a hires button right at the top if you want to support this channel in other ways There's affiliate links down below to get you deals and discounts on products and services We talk about on this channel including a link to our patreon if you'd like to become a patreon supporter We also have a swag store where you can get shirts and other items that are for sale and that changes from time To time what's available and what's not so go ahead and check that out frequently And finally our forums if you'd like to have a more in-depth discussion about this video suggestions for new videos or just reach out Say hi and talk tech our forums are a great place for that. All right now back to the content All right, so do we pay our salespeople commission plus base? Yes So if that's what you were looking for there's your answer on that But the nuance is very important What do you pay on and there's two options here and make sure so I say them correctly I have on my phone. It is the net revenue model or the gross margin model What's the difference so net revenue means the total of the sale the salesperson gets a commission on that percentage The problem is and if you work in tech you're shaking your head going yeah that's kind of a problem because what if they sold a lot of hardware, but no labor and For us here at Lawrence systems. Well, where do we make our money? No secret. We make our money by Leveraging the knowledge of my staff against people's needs. It's kind of as simple as that people go Hey, I have this network engineering or a VPN project or something that we have a skill set and setting up the storage server What are that might be that's just a knowledge transfer That means that we make the most margin on that because we have a value that we set on there And when you're setting on a product or service that you perform you can kind of set the margin and control it better We don't make the hardware. We don't make those switches that are stacked up behind me So if a sale were to pay the same commission on both that would be very problematic Because it's a race to the bottom when you don't make the hardware and especially when companies sell product that aren't channel partner direct And which is common and I have no problems with it But that means that anyone can buy it and frequently they do and the margin being so low on those means if I pay the sales Commission on both sides that we bet so let's talk about gross margin model That's what we do gross margin means you pay your salesperson a percentage of the margin That is the amount of money you make on the entire sale doesn't matter what it is hardware labor Whatever the margin is on there. This is a much harder to do And the reason why a lot of business owners and this is maybe you have taken the time to calculate this Maybe you have not Not all business owners are as clear as they should be on What the cost of goods sold what their fixed costs are and understand their margin especially on a per sale basis It's actually once you've taken the time to really think about how your model works and you structure your sales around this It's actually not too hard But it's something that is well imperative because you can't say I'm gonna pay you a margin But I don't know what that margin is and that's a conversation That means your salesperson has to be deeply involved into margins of the business That is it's maybe a little bit more responsibility than some people only take on but it will tell you it is great Because now the salesperson only gets paid a percentage of the margin that means they'll never sell something at cost because they would make no money On it so they wouldn't do it to just close the sale like on the net revenue model They're gonna go wow I'm gonna make no commission if I don't mark this up second because we'll allow many of our clients We're working with internal IT teams as part of the Sales we do where maybe let's say a school district has an internal IT team and this is you know ongoing Engagements we have right now They'll want to buy the hardware directly because sometimes they get different rates on it and what we're gonna do in that particular instance is Allow them to separate out the hardware and only charge for labor by the way We make the best margin on the labor so now the sale was able to go through there's no worry the sales commission like oh No, I'm gonna get beat up on this because it's net sales And now the sale just cut way down because it's only the labor and the you know $50,000 in parts that they wanted are not gonna be part of it But if there's no margin on it, what did it really matter? So that's pretty much in a nutshell how we do it is really as simple as that and then the last little piece I'm gonna do is define right here. What's a sale? So a sale is eligible for a commission under the following conditions This is part of the way we write things up the salesperson initiator completed the sale with a new customer It seems kind of obvious, but they find new customers and things like that In the other side of it though, that's really important the salesperson initiated contact and complete sale with an existing customer That's actually a huge one there and one of the reasons you pay your sales people like a base commission Or a base salary plus commission because well a lot of times just been saying hi to clients And you can send all the mailers out in the world and let your clients know of all the fancy things that your company offers But you'll find those go in the garbage and all those mass emails you send up get ignored And you'll surprise someone when you call an existing customer and say hey You know I heard you might want a camera system because you were having some trouble or whatever You know through some conversation they had and they go you do cameras. Yeah, we've been doing it for five years And but you know people ignore all that because well, you're not the only Company sending the mass amounts of mailers and emails trying to let them know of products that service you offer That's one of the important aspects of salesperson is just to make those calls the last one is Salesperson upselling an existing project and this is something where you know You can have things in transition it weren't initiated from your sale person and then they want to upsell it And this is where you can take like managed services Which is one of the services we offer and maybe that gets upsold But they weren't part of the original sell but you still incentivize that for the add-ons They do and create a monthly recurring commission on that margin as well And like I said back to being on margin even when you're selling a recurring service that we offer Such as managing or any other features on that adding to those commission sheets and paying them up monthly keeps it really simple So that's kind of in a nutshell how we do it. It's it's relatively simple in terms of the way the salesperson gets paid It's simple because you know every sale is made Definitely making a margin or the salesperson wouldn't bother doing it because they wouldn't get anything But the hard part is knowing what those margins are and things so you're gonna have to identify that you're gonna have to Have an honest conversation with your salespeople and make sure they understand that they have to be vested in there And it for us makes a little bit easier because we run our company what we refer to is open books So that they all are aware of what the revenues are and what the costs are of the company So they have a deeper understanding of it because they have access to all that information But once you've sorted all that out and you know put things down and understand that margin It's a lot easier to do this. So hopefully that's helpful and a little insight into how we do things here at Lawrence systems. 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