A vitally important (although often underestimated) component of successful sales is the incentive and compensation plan. An effective plan should include the following attributes:

• Clearly stated monthly and annual sales goals. Assuming the above components are in place, goals should be realistic and attainable with the appropriate commitment, effort, and execution on the part of the salesperson.
• Sales commissions commensurate with the profit margin on sales.
• Additional cash bonuses for surpassing monthly and annual sales goals.
• Additional incentives for winning sales contests (trips, prizes, etc.).
• An additional incentive for self-generated sales leads and referrals. Self-generated sales leads are leads generated by comfort advisers (the title we gave to our salespeople) through activities such as canvassing neighbors of current customers.

At Peachtree Heating and Air Conditioning in Atlanta, the hvac retail company I operated from 1990 until 2002, we had eight residential comfort advisers who in 2001 averaged $1,232,305 in retail sales (expressed in 2006

Our installed pricing was established at 52 percent gross margin (before deducting sales commissions), and our sales actually averaged a 50 percent gross margin. The average commission percentage earned by our comfort advisers was 7 percent of the amount sold. Each year, over half of our comfort advisers would exceed the annual sales objective and therefore earn an annual performance bonus.

There were added incentives, such as prizes or manufacturers’ incentive trips, for exceeding sales goals during certain periods of the year or for selling the most of certain promotional super-high-efficiency heating or air conditioning models during contest periods.

Each of our eight comfort advisers was issued the same number of company-generated sales leads. Self-generated sales leads and referrals did not affect the number of company-generated sales leads that individuals were issued. Consequently, the comfort advisers who did the most effective job of generating leads and soliciting referrals were always the top sales producers.

Jackie Rainwater is a 46-year veteran and former owner of Peachtree Heating and Air-Conditioning in Atlanta. He built his businesses on service agreements.