ROI on Employee (salesperson)

[alltherage]

There are probably some management people or owners on this site, and I was wondering, what do you consider a good ROI on your salesperson?

Is it 20%? 50%? 100%?

Should you make more off your employee than you pay them? ie, an employee makes $100,000/yr, should you make more than that off them per year?

[bizaro86]

Originally Posted by alltherage

Should you make more off your employee than you pay them? ie, an employee makes $100,000/yr, should you make more than that off them per year?

Pretty sure if you're making less per employee than you pay them you'll go bankrupt

[Hilch]

Originally Posted by bizaro86

Pretty sure if you're making less per employee than you pay them you'll go bankrupt

I think he means employee gets paid $100,000, said employee makes company $100,000 in profit after said employee is paid.

[bizaro86]

Originally Posted by Hilch

I think he means employee gets paid $100,000, said employee makes company $100,000 in profit after said employee is paid.

That would certainly make more sense

[jammies]

I'm not sure if "ROI" is a useful number when applied to an employee. Somebody has to clean the toilets, for example, but they aren't necessarily making money while they are slopping out the washroom.

[MarchHare]

How do you assign an ROI to an employee who works in a support position? Many business units are cost centres and generate no revenue, like IT, HR, facilities management, security, catering, reception, shipping & receiving, etc.

[bizaro86]

Originally Posted by jammies

I'm not sure if "ROI" is a useful number when applied to an employee. Somebody has to clean the toilets, for example, but they aren't necessarily making money while they are slopping out the washroom.

It has to be looked at in total, I would think.

The temptation is always:

Salesman: "I sold $100 worth of widgets, I should be getting $50 of that"
Factory worker: "I built $100 worth of widgets, I should be getting $50 of that"
Designer/Engineer: "I designed $100 worth of widgets, I should be getting $50 of that"
etc, etc

[Ashartus]

An employee costs a lot more than their salary once you factor in benefits, overhead (office space, computers, equipment etc.), and administrative costs (human resources/payroll, etc.). Depending on the field, the cost of an employee could be around twice their salary. Also consider that an employee isn't making money for the business all the time - some of the time is spent training or doing other tasks that don't directly bring in money.

[alltherage]

Originally Posted by fotze

Sounds like someone feels like they are being underpaid.

Aren't we all? Actually, I am trying to figure out what expectations are for a new employee under myself.

It's a sales position, so that makes it pretty cut and dry. Employee makes X, what should he/she produce for profit.

[GP_Matt]

It depends a lot on the industry, but I think the restaurant industry typically has a labour cost around 25-30% of revenue. I am pretty sure that the profit margin of a restaurant is nowhere near 30%.

It sounds like you are looking at it as I am a (insert job here) and my company bills my time out at $100 per hour and only pays me $50 an hour which doesn't seem fair. Something to consider is what are the costs to maintaining me as an employee. I think that 25% of salary is pretty close so if you are paid $50 then the company likely spends another $12.5 an hour on things like benefits, vacation time, Christmas parties, payroll deductions, training, sick pay, and things like paying Ceridian to make sure are paid, maintaining an HR department and legal counsel in case you decide to harass someone. On top of that you have all the other business expenses like advertising, rent, supplies, receptionists, phone, internet and utilities and the thousands of other expenses the business incurs.

What industry are you in?

[alltherage]

Originally Posted by GP_Matt

It depends a lot on the industry, but I think the restaurant industry typically has a labour cost around 25-30% of revenue. I am pretty sure that the profit margin of a restaurant is nowhere near 30%.

It sounds like you are looking at it as I am a (insert job here) and my company bills my time out at $100 per hour and only pays me $50 an hour which doesn't seem fair. Something to consider is what are the costs to maintaining me as an employee. I think that 25% of salary is pretty close so if you are paid $50 then the company likely spends another $12.5 an hour on things like benefits, vacation time, Christmas parties, payroll deductions, training, sick pay, and things like paying Ceridian to make sure are paid, maintaining an HR department and legal counsel in case you decide to harass someone. On top of that you have all the other business expenses like advertising, rent, supplies, receptionists, phone, internet and utilities and the thousands of other expenses the business incurs.

What industry are you in?

Not exactly... this is more about from an employer standpoint as I said before.

Really just wondering if any sales managers have a read on what is a "good" ROI.

[SebC]

Originally Posted by alltherage

Really just wondering if any sales managers have a read on what is a "good" ROI.

A "good" ROI (on anything) is anything greater than the best alternative you could invest in instead.

[-TC-]

I think I know what you are asking.

If you don't factor in burden, probably about 400%....off the top of my head

[GP_Matt]

I think SebC has it right. The employee should be paid what the market dictates his position is worth. If the profit that you make off of that employee is not sufficient then you need to reevaluate the position and the rest of the costs in your chain.
Profit can range from fractions of a percent of revenue to 30% of revenue and up, there can be no magic number for ROI.

[CaptainCrunch]

I've been selling corporately for 20 years, mostly in IT and software solutions, and depending on profit margin, the commission/salary pie is usually around 1/3rd of the profit pie at the most.

so if you're making $100,000 in salary and commission then you'd better be generating around $300,000 in profit dollars, that covers overhead on the sales person and his deals and profit to the company.

The usual rule for an effective account manager is to sell around 5-1 sales dollars to commission salary dollars at a minimum subsistence rate.

So at minimum if you're making $100,000 you'd better be selling at least $500,000 at > 20% profit dollars just for your owner to break even on your salary.

Again depending on what your selling.

but in terms of bigger ticket sales items depending on minimum sales, someone making $100,000 + really should be a top performer and the preference is $1,000,000 in volume at 25% to 30% in profit margins.

Should you make more off your employee than you pay them? ie, an employee makes $100,000/yr, should you make more than that off them per year?

Yes, because you have to pay salaries and overhead and desk funds support or warranty on any products etc.

[freedogger]

Originally Posted by MarchHare

How do you assign an ROI to an employee who works in a support position? Many business units are cost centres and generate no revenue, like IT, HR, facilities management, security, catering, reception, shipping & receiving, etc.

Not to pick on you specifically...

I get totally annoyed about the idea that IT is a cost. Where I am now, the billing app I will deliver this year will generate about 1.2 million a year more in revenue than the legacy app it replaces. It takes one person to run it, the nearest off the shelf application takes three people to run it. That's just the revenue side of the app. The Business Intelligence reporting they will get out of this is also amazing. At least the company didn't flinch about my $5/hr rate increase for next year

[CaptainCrunch]

Originally Posted by freedogger

Not to pick on you specifically...

I get totally annoyed about the idea that IT is a cost. Where I am now, the billing app I will deliver this year will generate about 1.2 million a year more in revenue than the legacy app it replaces. It takes one person to run it, the nearest off the shelf application takes three people to run it. That's just the revenue side of the app. The Business Intelligence reporting they will get out of this is also amazing. At least the company didn't flinch about my $5/hr rate increase for next year

I would agree to an extent, while an effective ERP for example is not a true revenue generator, it is a strategic tool that allows organizations to very quickly look at wastage and overage and be able to compensate for spikes in those areas which increases organizational profitability.

At the end of the day though because IT doesn't directly generate revenue it is a cost center, but it can also be debated that properly utilized its one of the only true areas in a organization that can significantly reduce costs on a global basis.

[3 Justin 3]

I know that hourly wages are usually 3 to 1 or around there (300% +). ie. You pay them $12, they bring in $36 in sales. I think anyway.

Not sure on corporate world, ie. not paid by the hour.

[CaptainCrunch]

Originally Posted by 3 Justin 3

I know that hourly wages are usually 3 to 1 or around there (300% +). ie. You pay them $12, they bring in $36 in sales. I think anyway.

Not sure on corporate world, ie. not paid by the hour.

Depends on the profit point of that 36.00. If your margin is 10% for example or 3.60 in profit then your losing 8.40 per hour.

In order to pay someone $12.00 hour you need then to bring in a minimum of about $18.00 in margin per hour, and thats very minimum.

[3 Justin 3]

Originally Posted by CaptainCrunch

Depends on the profit point of that 36.00. If your margin is 10% for example or 3.60 in profit then your losing 8.40 per hour.

In order to pay someone $12.00 hour you need then to bring in a minimum of about $18.00 in margin per hour, and thats very minimum.

Sorry, that's what I meant. $36 in profit, not revenue.