TG&E staff celebrate Halloween

In a recent SMPS Listserve thread, one member asked about the possibility of using commission to create incentives for sales in the AEC space. Most members (including myself) agree that commission-only models simply don’t work for long-cycle projects especially when many people are involved in winning and working on the jobs.  See this earlier posting on the topic.

But Michael Wong, CPSM, LEED AP, Business Manager at Tom Green & Company Engineers, Inc. (TGCE), a mechanical, electrical, and plumbing engineering firm in Austin, TX, suggested this option:

“I think the best way to address this issue is that the whole firm comes up with a formula for incentive pay based on profitability of the company. That way, the company acts as a team for all project efforts. For example, in this situation, the marketing department is not just bringing volume, but also needs to pay attention to the type of projects that are brought in. This also gets great buy-in from the technical staff to assist with marketing efforts.”

I reached Mike by phone to learn more and discovered TGCE is a practitioner of Jack Stack’s “Open Book Management” philosophy. In this system, everyone in the business is made aware of – and participates in determining the company’s business direction. Employees see how individual and group efforts contribute to company profitability, and where waste hurts.

Tom Green

Mike said the profit sharing is a major part of the compensation structure at TGCE. This helps in retention – but he acknowledges, can make recruiting engineers and other staff a greater challenge, as new candidates usually have not been exposed to this method of management and must buy-in to the true team concept. And while being a true part of the team means being able to share in the spoils, it also means that all share in the risks of running a business. Therefore new candidates must not only be seeking a job, but also a place to develop their entrepreneurial spirit as well.

Of course, personal salary information is kept confidential, but employees certainly see the entire picture – from a big picture level to the ability to access information about projects throughout the organization. “We have a report that summarizes activity on every project on a monthly basis,” Mike says. “Basically everybody gets the summary. And project managers regularly get more detailed reports on their projects, and individual team members can request any information they are interested in reviewing.”

While everyone shares in the company’s success, there still is room for individual recognition and achievement. Incentive pay, for example, Mike says is about “half and half” — “half is for things like seniority and stuff like that and half is for recognizing individual efforts.” An example of the individual recognition is that each quarter, employees vote on a MVP – most valuable player. Bonuses and rewards are calculated on a “cash” basis, so the practice does not get caught in the trap of paying out money when it doesn’t have the matching revenue.

Open Book Management has many advantages, I think, for AEC practices seeking to balance the need for individual recognition and achievement with the understanding that the group is often more responsible for a business’s success than single stars. TGCE’s approach may be one worthy of consideration in your practice. For questions or comments, Mike may be reached via e-mail at mikew@tgce.com or phone at (512)345-7793.

Forgive me in advance if this topic has been posted before.

Would you be willing to share whether or not you have personally worked within or your company has established a commission-based sales environment? I know it’s rare in the A/E/C industry but I wonder if there is a successful example of this. The thought is that it will separate the real rainmakers from those who cannot sell at all. There are a lot of variables and models to choose from. I’m not necessarily for or against it. I just want to have all the facts and potential pitfalls.

Thanks for your feedback.

Several responses echoed my own.

Although obviously I am not in the AEC industry directly, I have worked on the commission vs salary issue for many years in the publishing business and also have studied where the different formats work and where  they don’t.

In general I believe commission sales is problematic for professional AEC practices especially for business development on long cycle projects (which most ICI stuff is, of course).  Where commission is the norm is within the retail/consumer marketplace — the classic “Tin Man” selling siding, driveway paving and the like.  AEC practitioners, especially seller/doers will likely rebel against models where they must live on commission UNLESS they are true owner/partners and assume total responsibility for operating the business.  (After all, in a start-up situation, the owner/doer essentially is working on 100 per cent commission because everything is his/her responsibility and there is no income unless sales come in.)

The publishing world where I inhabit lives in two places.  Many publishers recruit and pay on a commission-only basis but I’ve moved away from that model because I believe it invites an environment where the reps focus purely on short-term sales and don’t work on developing long-term relationships.  However, I do my best to set hiring criteria/standards so that the reps would only be hired if they could actually perform on a commission basis.  In fact, we have two tracks, the commission and the salary, and when the sales rep achieves quota effectively he/she is working on commission.  At that point, the rep is “free” to set working hours and conditions but (and this is the good thing) the commission-earning rep has the discipline and habits of a regular employee so attends meeting, follows procedures and generally contributes to the business as a team member rather than someone out for the quick buck.

This issue is debated back and forth, but I think unless you are ready to give true and total ownership, commission won’t fly in professional practices.

Related to this point, however, is a question:  If commission won’t work in professional practices, and there is plenty of evidence that the most important element in repeat business is the relationship between project managers and staff and the client (in other words, the technical rather than sales staff), how do we (a) hire people with strong business development and rainmaking capacities and (b) how do we “motivate” technical staff to take charge of business development when opportnities stare in their face.

For the former, I can recommend Ford Harding‘s resources.  His organization specializes in developing rainmakers and in helping companies in the recruitment a special kind of sales representative:  The person with professional practice designation who is also great at selling.

Other resources include personality testing (I like salestestonline.com), an employee-ownership and open-book management business culture and possibly some staff training and internal bonuses/referral gifts for non-sales employees.  (Small amounts of money can work wonders in this regard. For example, we have a line in our office for accounts receivable which is only staffed part-time.  Rather than allowing the calls to go into voice mail, I bribe employees with a $5.00 phone answering bonus.  I could have been “efficient” and simply routed the line to the administrative desk, but this solution engages all the employees in the office with the account collection/client service function.  It has radically improved client service and our ability to pull in cash from people wanting to pay their bills by credit card over the phone.)

In fact, his emails are among the most effective marketing resources I’ve ever seen because he strategically plants really strong and verifiable testimonials right below his email signature lines.

Can you do the same thing for your business?

A few days later, the representative emailed me again.

Mark,

I enjoyed reading the post from Wed. (6/16) on your Construction Marketing Ideas blog. I think it’s a fair assessment of (Ed: name of website removed), and one shared by many first time visitors. I genuinely appreciate the feedback. It can be difficult to get an honest read when the initial audience is largely comprised of contacts with personal connections.

So, I get the impression we over-sold it a little, especially on the community pitch. It is indeed a fine line between who we know we can be and what we are at the moment. We have been successful building the brand aesthetics and have an excellent start on the content and media, but that third component of audience is only now becoming the focus of our efforts. We feel the social media functions offer a unique opportunity for firms and businesses in the AEC industry. And we are dedicated to pushing the technology and functionality to optimize the usefulness for the industry. We just need to get the industry to try it out.

While I completely understand the necessity for a full evaluation prior to making any kind of recommendation, I invite you to at least join the community and take the opportunity to test out the functionality. We could use an extra voice in our community to let us know how we can improve the tools. We even have a group focused on the development of the site – from the home page, to the KnowledgeBase, to the new community – which is open to any community member.

I’d also be happy to answer any questions you have about the team, our mission and our affiliations. If you’d like to set up a time to talk via phone, let me know.

Thanks for your time and attention.

My posting “Can you fake it until you make it” discussed the art of finessing the truth a bit to make a selling point.

Interestingly, when I read this email, I mistakenly associated it with a bad case of an “overselling” error by one of our company’s own representatives, which happened to occur the same day as the relevant posting.  Somehow, in my mind, I connected the difficult internal business  incident with his email and the “memory” of a posting on this blog, and so I responded to the person who wrote me by saying: “No, the overselling problem doesn’t apply to you, it does to me.”

Well, of course, there still is a problem here because I fell for one of the commonest marketing problems and challenges — the faulty perception where we mistakenly link one cause to another effect.  The social networking site publicity seeker’s assertion:  “So I get the impression we oversold a little” didn’t have anything to do with our own “overselling” mistake, but his use of the words resulted in me connecting the dots falsely to assume he had responded to a posting I (never actually) made discussing he dangers of overselling!  And here is the real surprise.  I only realized my erroneous conclusion when I set out to research and find the purported original posting to write this blog entry — and discovered the person writing to me was writing about the challenges of finessing the truth, not “overselling” — at least the type of overselling I experienced.

Frankly, misunderstandings like this are both good and bad from a marketing perspective.   Sometimes you want people to make a faulty association (with something good, reputable, or popular) and clearly you don’t want to be associated with anything bad (crime, scamminess, spamming) and often these mistaken associations occur even though you don’t seek out to deliberately or even subtly mislead anyone.  As an example, in some of our communities, our independent publications are mistakenly associated with “official” construction association publications.  We never represent ourselves falsely.  We put a small association logo within our publication as we are allowed to (and encouraged) by the associations to show our memberships, but nothing inside the publication suggests anything more.  But some people think we are THE association publication, and I suspect, in some cases, they choose to do business with us because of this faulty assumption.  (In other cases, we actually publish official association publications or special supplements in co-operation with the relevant associations and, in these cases, of course, we let everyone know the link.)

Now, what about the assertions and hopes for some attention from the person representing the new website seeking to create a social networking environment within the AEC community.  I looked at his site again last night, and it seemed quite well designed, but I didn’t rush to log in or “join the community” This is simply because it requires more effort and identity-sharing than I’m prepared to do right now as our deadline approaches.  In any case, at the time I was reviewing his site, I thought  though the “overselling” he referred to related to something that happened which had nothing to do with his email!

Are there ways he could have received more or faster attention to achieve his media publicity goals?  (I suppose he has my attention now, but equally, now I’m committed NOT to publicize the site right away to cover my own embarrassment.  In any case, I rarely name any other organization publicly unless I can share clearly positive news.)  Possibly.  But I’m not sure any of these options really made any more sense than the direct approach.

• He could have connected through someone I trust and already respect.  This would involve reading my book and previous weblog postings and then dropping a line to that person/organization seeking an introduction.  Best of all, (and most effective) would be making that request through one of our paying clients.

• He could have arranged to advertise here in some way or another.  Sponsored weblinks here are only $12.00 a month, for example, and you can cancel anytime.  The time and effort for me to set up the weblink would “force” me to look at the site in question.  Then, if it has intrinsic merit, I probably would be happy to plug it.  (I realize there is a supposed Chinese wall between editorial integrity and paid advertising — but in the business-to-business and blogging world, the lines are much more blurred, and sometimes a little “dash” goes a long way.

• He could have created some buzz by connecting and participating in some of the existing communities and forums I belong to or even lead (such as the LinkedIn Construction Marketing Ideas group.)  Of course, he needs to be careful not to be cheesy or violate the forum guideline rules for advertising and self-promotion, especially since his organization hopes to sell advertising in its social networking group.

All of these ideas of course don’t overcome the fact that he represents a commercial business which is hoping to make money from advertising and sponsorship — and in some ways, that makes him a potential competitor to me.  I don’t really worry too much about that in deciding who or what to write about here:  after all this is a Construction Marketing Ideas blog but equally I tend to be more cautious in promoting/publicizing organizations seeking attention to sell their own wares than to truly serve the community without expectation of return.

I’ll get to the site/community the person wrote about eventually (maybe sooner than later) but leave with one parting observation.  I looked for a real physical address on the website and an explanation of the organization’s corporate organization/ownership, and couldn’t find it.  This is a yellow flag to me.  Is someone putting on airs where the smoke is greater than the substance? Maybe, indeed, there is some overselling here and I should just wait a while until the site really proves itself some other way.  But then we have the chicken-and-egg story that plagues marketers and start-ups all the time.  How do you successfully launch something new?  This is a topic for the next posting.

In real life, of course, most of us dress for our roles — we do this to project both our own values and the image we wish to convey.  Inconsistencies in our external appearance and the current/potential client’s perspectives of what “should” be right create a jarring result.  Sometimes you want this shock but usually it doesn’t help at all in your sales and marketing initiatives.  When you are hiring a roofing contractor, for example, you don’t expect the person to show up in a three-piece suit at your home but equally you would probably shy away from doing business with a guy wearing biker leathers and tatoos.  (And if you are a roofing contractor trying to sell a multi-year contract to a the head off of a banking network based in an extremely conservative city, you might of course check in advance whether they expect you to show up in a three-piece suit.)

Finessing and putting on an image of being bigger than we are is common for web-based initiatives.  You can easily project an image that exceeds your actual operations with a little help from a web designer.  This isn’t necessarily bad if you really can deliver the goods or services you are promising, but does it help if you are putting on a show you cannot deliver?

Similarly, lack of experience can be covered by creative wording or (better) ensuring you have a partner/colleague with the right level of experience available to help.

Sometimes I think you can go too far to finesse the story.  I’m following the development of a potentially relevant association (I won’t name it here because I rarely speak negatively about individuals or organizations in any identifiable form on these blog pages.)  It has a great website and all the trappings of something really huge.  Trouble is, I’m not sure how much real grassroots support the organization actually has and I’m waiting for signs of that support to be apparent before rushing in to endorse or support the group.  Is this association genuine, or just a ploy to advance a particular business’s interests. (Ironic, of course, because we generally join associations to advance our own business interests.)

In general, I advocate a truthful and respectful attitude and appearance when we are in the marketing space.  But sometimes it is helpful to show our weaknesses even though generally we don’t need to make a big thing of them (unless the weakness actually is the explanation of another underlying strength.)

Its okay to finesse.  It isn’t okay to be a phony.

What is a fair referral / lead fee? Do you pay a percentage or a set fee based on the project value. If a business partner gives you a lead do you pay for it if you get a job?

I know a retired builder that wants to work with me on a sliding scale referral fee (from 10% for under $2k to 4% for over $10k projects) where he would get a percentage of any job that he would refer to me. He has a 200-300 customer list he would contact. Claims he has always paid fees to others including other contractors, designers, architects and customers for years. He also feels he deserves a fee for any subsequent referral I get from the first customer.

I’m willing to pay a set amount – $100 for $5-20k, $200 over 20k but why would I pay someone an amount equal to my profit for an hour or two’s work to give me a name?

Not surprisingly, Travis received several entirely different answers to his question.  You can read them all by joining the relevant group (and while you are in the Linkedin.com space, you may also wish to join the Construction Marketing Ideas Group), but I will post consultant Michael Stone’s as probably the one that I would consider most relevant in the circumstances.

Referral fees should be the same % of total sales as your advertising budget. A job coming from a referral or from your job sign or from your business card, totaled up and averaged, will all cost you the same.

Most people make this “paying for referrals” far more complicated than it needs to be. I believe you can tell everyone and anyone that you pay a referral fee, but you, not them, set the standard. Paying anyone 10% for a referral and you have a 4% advertising budget means you are going to take that additional 6% from your profits. If you are willing to work for nothing, that is OK, but sticking to your advertising budget makes far better sense.

Of course, Stone assumes (and strongly recommends) that you advertise for business, a position you might think I would enthusiastically endorse, considering that my business earns more than 95 per cent of its revenue from advertising sales.  However, I’ve always believed that construction businesses can first start by picking the low-hanging fruit, especially encouraging repeat and referral business, more effectively.

To give you some other referral system models, you can look at Bobby Darnell’s referral system which you can download off my blog, where he rationally scales the compensation depending on the referral depth and quality — a soft referral is a $100 gift card, a full-press meeting and introduction results in a significant commission.   The reasoning behind this variation is logical; at the highest end, the referring person is essentially acting as a sales rep for your business, and might reasonably be expected to be paid a significant portion of the budget you would allocate to a sales commission (which Stone sets a separate line item/budget in business costs.)

Then, you could look at the model used by Feazel Roofing in Columbus, Ohio.  His staff freely passes out coupons offering a $50 referral fee AND a $50 discount on a roofing job — and then allows the referrer to sign over the $50 to the client, resulting in a “soft cost” discount of $100.00.  Fezael’s roofing here is brilliant:  Friends and family members, less concerned about ‘profiting’ from their relationship, will sign over the cash fee — and of course it is much less expensive to provide a $50 discount than $50 in cash.

So, what should you do?

In many ways, I think Michael Stone has it right, at least in the consumer marketplace.  You have little need to be generous with referrals especially if you are operating an organized and budget-centric advertising campaign.  If your referring bird-dogs are behaving much more like outside sales representatives, however, a compensation scale similar to Bobby Darnell’s may more sense.  That is the approach I take with  my own business, adjusting our internal sales representatives’ compensation to reflect the additional lead cost (and the sales representatives rarely if ever object because the work becomes an ‘easy sell’.)

Of course, we all know that the best referred leads come naturally and without expectation of any compensation, because our existing client is so enthusiastic about our service they simply want to share the good news with friends and acquaintances.  But if we are “relying” on this sort of passive business, you really should read my book — your prices may be far too low and you may not appreciate the power that effective marketing campaigns can provide your business (while reducing risk of instability/collapse in hard times.)

The other issues need to remain under wraps for now except to a small circle of people.  They know  the measures I have taken to bring the problems under control and I am thankful for their support and guidance.

The crisis reached a peak on Monday night when I observed a critically dangerous confluence of events/possibilities going forward if I didn’t take immediate and urgent steps to resolve the problem.  In overdrive, my mind worked to craft an urgent solution and I spent much of the past three days implementing its components (while dealing with the other regular business issues, the AdSense fraud matter and maintaining some sense of normalcy with my family who are among the trusted circle for important things, of course.)

Fortunately, in businesses, these sorts of crises don’t happen too often.  I’ve encountered perhaps five or six situations of this magnitude since starting business in 1988-89.  I’ve observed with experience how my adrenalin surges and my mind often becomes crystal clear in a matter of minutes about what I need to do.  I will never forget the first crisis of this magnitude in 1991, about three years after I opened the business.  The insights I gained then shifted all of my self perceptions and completed the puzzle for personal maturity.  Two years later, Vivian accepted my marriage proposal.  That is one crisis I’m glad I experienced, in hindsight.  In fact, and this is important for my sanity, ALL of the crises have resulted in fundamental improvements and a better life for me and my family, and for the business’s survival and ultimate growth.

Times like these are interesting moments for marketers either representing their own business or seeking to sell to a business experiencing a crisis.  If your own company is in a moment of transition/danger/crisis, then you may need to make some extremely quick decisions to reshape your marketing strategies and (gulp) throw parts of your business/marketing plan out of the window.  The trouble is, you don’t have the usual analytical time to make decisions so may cut things that should not be cut.  This is especially the case if you use advertising to attract business:  Obviously ineffective ads should stop, but you need to be careful if the advertising is bringing in your vital leads.  In the crisis, I decided not to cut a cent from our marketing and sales budget and in fact increased it (holding to the values and framework of what I know will work and where to manage risk.)

If you are on the selling side, if you have a solution for the crisis, you have a perfect opportunity to get your foot in the door.  The problem here, of course, is you will need either exceptional luck or connections to know when and where the problems are occurring.  You most likely will have to establish a trusted relationship before things go wrong because businesses don’t generally rush to put out press releases beforehand.  (If the problem is visible and public like BPs mess in the Gulf, of course, everyone under the sun hoping to sell something will hop on the bandwagon and you will just be one of many making pitches.)  However, if have built the trusted relationships to connect with decision-makers, you are ready to go and have the answers which will help, you won’t have to wait weeks for a purchase order!

Mike Jeffries

I’ve described in several previous posts and my Construction Marketing Ideas book the advantages of setting up follow-up inspection/service visits as part of your initial contract with your clients.  The reason is simple:  Visits to remedy problems and ensure satisfaction build good will and put you in the perfect position to receive follow-up and referral business.

These observations continue to be validated by others, notably yesterday by Mike Jeffries who wrote in his blog:

Past customers are a great source of repeat business and for many companies their largest untapped source of business.

They have already made the decisions to hire you so you don’t have to sell them or at most you will need to reconnect.

I know of a remodeler that does 2 inspections after he completes a project. He does the first on the one-year anniversary and the second on the two-year anniversary. In a remodeling project there are almost always some little things to fix. He uses his visits to reconnect and to find out if they are planning any additional work.

He told me recently that 22 per cent of his sales come from doing additional projects that the prospect brings up on the two-year anniversary.

In a follow-up email in which Jeffries granted permission to quote from his blog in the current Construction Marketing Ideas newsletter (distributed today), he added:  “We have always advocated a 6 month to one- year  after the fact inspection – and it inevitably leads to more work – based on this insight and success we are now recommending that all of our clients do multiple inspections.”

His point makes sense.  If the follow-up inspection is one of the most effective and least expensive marketing options available to you, why not do more!

Jack Benny

For example, take the “free stuff” arguments described yesterday.  The Reciprocity Principle suggests that generosity results in rewards; give  a little free and gain a lot in return.  Surely, then, some free estimates or preliminary design services “should” help you find new business and attract good-will.  But the evidence observed from consultants such as Michael Stone in Profitable Sales: A Contractor’s Guide is that most contractors gain little from this sort of generosity:  They spin their wheels for price shoppers and idea-stealers and fail to gain enough commitment to justify the effort and time involved.

Sometimes we simply get it wrong.  Conditioned to act the way others behave (another standard of marketing, following the crowd) we do what our competitors do, or what we think is the norm, only to find the efforts are generally wasted.  Take the conventional “ground breaking” news release where a bunch of people stand in front of ceremonial shovels for a grip-and-grin shot.  Yawn.  (But in the real world of new media, these boring shots are actually quite relevant — just make sure everyone you really want to connect with is in the picture, and then publish it in your news release, website, and convince your local publisher to post it as well:  People love to see their name in print.)

But maybe we are right and the other perspective is incorrect.  In my book on construction marketing, I advocate that you consider using supplier-paid co-op advertising, because it is free or nearly free.  However, Adams Hudson debunks that myth in his book:  Contractor Marketing Secrets Your Competition Doesn’t Want You to Know.  He points out that if you use the co-op materials as your primary advertising message, you will be building your supplier’s brand, not your own.

Then last night I turned on the “TV” (my computer) and for an hour watched an old Jack Benny show on a small UHF television station in the Texas Hill Country (where I met the late Walt Hailey in 1995 and learned some of the marketing principles that guide my business today).  As I laughed at some wildly old comedy — the early 60s video portrayed a “prison” in 1985 — the commercial break cut to a local heating contractor who relied on co-op marketing material.  I’m sure the HVAC contractor didn’t expect his ad would “reach” a publisher in Ottawa, Canada.

Is your head spinning now?  Can you even begin to figure out what to do, and what not?  Then, lets get scientific and see if we can find some answers.  But here again, you will discover that physics is something like marketing.  It is, or it isn’t, or it is both, and the truth may depend on where you actually stand.  So, taken in total, we are right, wrong, both or none, and you can believe what you want but if you believe too much you will either become a religious zealot or perhaps head off the deep end.

Seriously, of course, the secret to success is to apply the cumulative knowledge from a variety of places, experiment, test, find a standard that is effective, then consistently and routinely test it against alternatives — always ready for the quantum shift which could change all the rules.  Great stuff lives on, though.  Jack Benny is still funny 50 years later.

And in this free blog I’ve promoted two books  from completely different consultants.  What about my own advice?  Should it be free, or should you buy (sorry, invest in) my book: Construction Marketing Ideas: Practical strategies and resources to attract and retain clients for your architectural, engineering or construction business?

The latter in part is why “free estimates” offers are so dangerous.  They lack uniqueness and they invite abuse from price-shoppers.  The late Sonny Lykos and other residential-focused contractors advocate design fees.  (See “The Process”.) You can of course give a quick ball-park estimate (this helps weed out people who simply have no idea how much the work will cost) and of course provide free estimates for clients you know well who are either referred or previous customers.

In the non-residential space, contractors often play the “free estimate” game by bidding public work.  When “low bid wins the job”, you’ve just lost, most likely, unless you have truly efficient processes, a highly specialized service where there is little competition or something fishy is happening.  Even worse are  design-related RFPs especially in U.S. jurisdictions where Brooks Act provisions apply.  In these situations, if you aren’t already connected (or something very rare is happening) you simply will not get the work, no matter how hard you try and how much effort you put into the process.

Then, how do you win business with your generosity? The answer is the big “R” in marketing — Relationships.  People like doing business with other people (and organizations after all are groups of people) who care, are respectful, genuinely interested and show they really know what they are doing without being pushy or arrogant about it.  So when you see someone offering to help without worrying about return, you tend to like the person.  When you see the help is really competent and insightful — and you have other evidence of the marketer’s true competence — your resistance breaks down, you recognize the marketer’s brand value, and you are willing to do business.  You’ll pay a design fee, even.

Now, you may ask, how do you bridge the gap between free generosity and really high-ticket sales.  Some pundits advocate a “small steps” approach with escalating opportunities to commit more resources and money as you build your reputation and recognition.  This is where things like books and Webinars can be useful — you can set a modest fee on a relatively-value product/service and collect some revenue.  Your client, if you do things right, will feel well-treated by the experience and be ready to commit to larger purchases and major projects.  Frankly, this is some of the motivation behind my decision to write the Construction Marketing Ideas book (but for the book, I’m pleased that it is selling well in its own regard.)

I encourage you to think creatively about these points.  Generosity is a powerful resource but you don’t need to be a sucker or give away your services for free.