Employee Commission Structure.

[PAkev]

I have a part time employee starting tomorrow. I actually hired and trained her about 13 years ago at a chain I worked for early in my career. We have already agreed on an hourly salary and I told her I would develop some kind of commission program for once she is able to execute sales on her own. I know there are many ways to structure incentives with each having their pros and cons. ie. x dollars for PAL's, x dollars for AR, x dollars for Transition, etc.
I'm hoping to make things relatively simple and was thinking about a percentage of sales type agreement for non insurance transactions. Also thinking about giving her a bottom and top range to work between to have some autonomy in making deals with patients. For example: with a $300 sale a full 10% commission would be $30 but if she wishes to give someone a $10 break because they purchased a previous pair of eyewear from her, the commission would be $20.

I'd like to hear some other helpful advice or commission structures that I may give consideration to as I begin putting something in writing for her.

[Jedi]

I would avoid bonuses tied to specific products AR, PAL's etc. and base it on something more general like monthly sales or increase from last year. Spiffs on specific product can lead to poor dispensing decisions.

[Happylady]

I don't think you can expect your optician to give a patient a $10.00 break if it means she will be paid $10.00 less.

Where I work we get a % of gross sales and net sales after expenses. We send out patient surveys every month and get a certain amount based on patient satisfaction.

[For-Life]

Profit sharing is the best way to go.

Therefore, it not only encourages high revenues, but also cost efficency.

I would not do it any other way

[rbaker]

Employee compensation is always a touchy area and much has been written on the subject. What we are trying to do here is balance economics with human nature. Economics is a fixed system and human nature is a variable system. The economic side of the equation is quite predictable. The human nature side, however, is where the Devil may be found.

As an illustration we have the following:

Digital Equipment in Maynard, MA needed a new hard drive design with small size and large capacity. The task of designing this drive was assigned to five different engineering teams. The team that designed the first drive to meet the design requirements would receive a rather substantial bonus (like $25,000.00 and a new BMW for each team member.) Soon into the design cycle the teams stopped talking to each other. A short time later the teams began to actually sabotage the work of the competing teams. Break-ins and the destruction and theft of the others work became every day occurrences. Three months later, management discontinued the project and outsourced the drive after spending over $2,000,000.00.

I have seen too many cases where the motivation to gain a few extra bucks has either cost a sale or resulted in an inappropriate sale which later came back to bite the shop, or worse yet, didn’t come back. How about dissention among the staff over actual or perceived inequities over bonuses? And, on and on and on.

My belief is that commissions, spiffs, bonuses and profit sharing should be avoided. Your employee’s salaries should be at such a level that these “extras” are unnecessary. This, of course, means that you must hire and develop the highest degree of skill and talent within your organization. And, if you, as an owner or manager, can not determine the value of an employee to your organization then you should not be involved in the management process.

I also believe that the principal purpose of a successful business is to provide a decent standard of living for its employees. Secondary considerations are profits to owners and stockholders. You see, if the first principal is in place all of the rest seems to happen.

Just remember, good employees are expensive. Poor employee are even more expensive.

[PAkev]

Thanks for the responses!

I didn't mention it in my initial post but I am coming from a one man band situation to having one other person around the office....Nothing Elaborate Here

She is only working 3 days/week while kids are in school so we are being flexible with each other. She understands I can't afford to pay a premium salary right out of the gate but also knows she has the opportunity to earn a fair compensation based on sales performance. As far as economics go, she probably doesn't even have to work because her husband has a good paying job with the federal government.

I respect the belief that opticians should get paid to do a quality job without extra compensation but we are in an unlicensed state. With a low resource of competent opticians there is really no established playing field to base a realistic and fair salary structure upon. Therefore, those (the few) that recognize a decent standard of living are usually the ones that have also committed to suscribing to and promote a higher standard of eyecare.

[Chris Ryser]

For example: with a $300 sale a full 10% commission would be $30 but if she wishes to give someone a $10 break because they purchased a previous pair of eyewear from her, the commission would be $20.

You give her a commission of 30% at full price. However at a $ 10 reduced price, you punish her take by 30% of the commission while $ 10.00 only represents 3.5% of the toatl sale. You should be alittle more human.

[ilanh]

Compensation should be predicated on the type of behaviour you wish to encourage. For example, if this person will be working mainly in sales you should structure the commission based on a percentage of gross (not on spiffs). However, if this lady is also going to be involved in lab purchasing decisions, frame orders etc then she should be compensated according to NET income (ie: penalized on extensive expenditures and rewarded on intelligent frugality). There should always be enough of a base pay to make the employee feel that there is a security umbrella, but a good chunk of the pay should be commission. In my shop the optician gets a very nice base pay but also gets 10% of the net income. This makes her very attentive to her sales but also to her expenditures.

P.S: I recently spoke to an optician whose commission was based on GROSS income only; even though her job included ordering lenses from labs she did not know a single price of any lens. Simply didn't care.

[PAkev]

Geeze..........I really thought I was going above and beyond being the nice guy .....................let me first shake the tar and feathers off! :shiner:

Although I respect the opinions offered, I personally don't think a commission of $20+ per sale plus an hourly salary is too shabby for a part time employee. Not really sure how it has been construed as "penalizing" the employee if they have autonomy over the final sale price.

[billtbyhand]

Hi,
Here in our store we have about 10-12 people working, and the office manager and Doc came up with a system of Bonus Hours for employees each month.
Based on overall sales and profitability each month, each employee has anywhere from 4 to 12 hours of time put into a "pot". All employees get the same amount, but each area contributes to how many hours are earned. That way we don't have people killing each other over a high dollar sale while brushing off someone who needs a bottle of lens cleaner.

The hours are available to be used for sick leave, personal time, or they can be cashed in for pay. So far this has been a pretty cool way of handling it. Everyone must take care of their job, and customers who aren't flashing big bucks don't get the shaft in terms of being taken care of.

I ran a retail computer store for 20 year before becomming a "lab rat", and we paid a base pay and then a % commision based on sales. We were a small store (4-5 people at a time), but we would always run into someone working with us who would jump at anyone they thought was going to spend a bunch of money, and just ignore the guy spending $5.00 for a mousepad.

[eyedoctodd]

Why should the employee be free to give discounts to customers that you have not specifically agreed to in individual cases or in terms of policy?

That discount is a drain on your pocket, not the employee's and what's to prevent them from throwing that around.

Such discounts that you're not specifically aware of/approving are going to totally mess up any tracking calculations you might have, whether they are in cost of goods sold as a percentage of gross, etc...



You need to have a clearly outlined discount policy from day 1. This way you are not cultivating a base of customers who are partially with you "because of the discount Suzie gives", who will vaporize when Suzie quites/gets fired/moves out of state etc.

I wish I had had that in place from day 1.

[sparky]

It's hard to come up with a fair and just bonus rate. If an employee sells a high end frame/lens combination your profit margn is generally lower than your mid range frame and sv poly sale. Maybe review your profits from last year in the same month and give her a percentage of the profit growth. That way your both making more. I think that "spiffs" on certain things can lead to unhappy patients. Sometimes people feel pushed into unnecassary purchases by spiff based opticians. Recently I had to let one go.

[Fezz]

Three year old thread alert!

[EyeFitWell]

Why should the employee be free to give discounts to customers that you have not specifically agreed to in individual cases or in terms of policy?

Such discounts that you're not specifically aware of/approving are going to totally mess up any tracking calculations you might have, whether they are in cost of goods sold as a percentage of gross, etc...

Three year old thread, yes, but I must strongly disagree with this post. You need to hire opticians who you see as knowing what they're doing, not little pissants who must go run to Doc to ask about every single discount. Know ahead of time that your average sale will be discounted X% because of insurance plans and set your prices accordingly. Then, give your opticians the ability to discount up to X% (usually 20) when needed to keep the sale. I hate looking like a car salesman running to ask my boss about every little discount, especially if the "boss" is an OD in exam rooms 99% of the time.

[eyedoctodd]

If you read my post, I mention discounts that are approved and/or are policy. That covers what you talked about. If the business owner has approved up to X amount then they're aware of it and they authorized it, and it's the policy.

You can understand, I'm sure, that there are employees who want to be the "nice guy" and throw that discount around even when it's not needed to make a sale. What do they care if they're not taking the hit? I think some sort of system tied to the net makes sense because people think not just of what products they've sold, but also how much margin there is on that, how that is hit when you discount it, etc.

Maybe we think about it differently. I don't view it so much as a retail store as a professional office where people get services and products that meet their needs. I mean, if you go to a dentist and they tell you that tooth whitening is $500, the hygienist is not free to "cut you a break" and give it for only $400. At least not where I live.


Finally, I think over-liberal discounting devalues the product in the patient's mind. We are never going to compete with chains on price, so we compete on quality and value and accuracy. If people see that you take 20% off just like that, they get wise and decide that it's not worth it at the regular price. True, some people look only at price. You can't change those people so you might as well move on to someone who appreciates quality and can therefore recognize value.

Just my $0.02

[Johns]

Maybe we think about it differently. I don't view it so much as a retail store as a professional office where people get services and products that meet their needs. I mean, if you go to a dentist and they tell you that tooth whitening is $500, the hygienist is not free to "cut you a break" and give it for only $400. At least not where I live.

That's why I love to compete against ODs & MDs. (Not a bash, really) Succesfull opticals cater to more than needs; they cater to wants. If you look at your business as more retail, you'll do much better.(not saying that you're not highly succesful and making your boat payments ok;))

When's the last time you heard someone say they couldn't wait to go shopping for shoes at the podiatrist office? You're not likely to hear them say they're going to their eye doctor to shop for glasses either. (Sometimes, maybe; but not often)

And yes, if the $100 discount is needed to make the sale (they use $4 worth of materials for teeth whitening), the hygenist should be empowered to give it.

[Chris Ryser]

For example: with a $300 sale a full 10% commission would be $30 but if she wishes to give someone a $10 break because they purchased a previous pair of eyewear from her, the commission would be $20.

A $ 10.00 break on a sale of $ 300.00 is 10%. but what you propose to pay her is reduction of her commission of 30% for punishment of giving $ 10 discount.

That is not fair and will create bad blood. Set the rules what she can do what she can not do.