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May 28, 2019
What is a great General Manager worth?
We were recently working to find the right General Manager for an LBM company that had a $20m location in the Southwest, serving general contractors in single-family new construction. The company started a satellite location, serving a market that was 90 miles away from the major metro market our client focused on serving. As a satellite location/market, the owner wanted a strong leader who could operate with full autonomy since the executive team needed to focus on their major metro business. This satellite location is in an underserved market, running with only an operations manager and dispatcher leading the team and needed a dedicated General Manager to grow. The owner and I believed with the right leadership, the location should drive $30m in sales and a 10% EBITDA in the first 2-3 years as a low-case financial benchmark.
As the owner honed his focus on the right candidate from the talent pool, he requested input on what the compensation package should be. He was struggling as this location is a standalone business, whereas their other locations operate together as a market. We asked our client to consider the following questions to determine the right compensation:
- What are the compensation levels for the 7 candidates in the talent pool who have a proven history of success growing a location from $20m – $30m in sales, in a highly autonomous and entrepreneurial business model?
- What is the competitive advantage of this location’s business model to gain and hold share on its own?
- What level of influence will the right leader have over the profit of the location?
- What is the key-person risk of the right General Manager? Retention planning is best done before you hire any professional.
- What is the return on investment modeled out at varied tiers as the business grows?
- What are the appropriate benchmarks for the General Manager to hit, making certain inventory, A/R and people are managed in a healthy way?
Our client found great comfort in the balance and forward-thinking elements of this process. The candidate we placed was excited to have an entrepreneurial opportunity to build a business and be rewarded for success.
The final step in this process, we reported the base and bonus compensation programs for 15 independent LBM businesses with a situation similar to our independent client company: $30m sales and 10% EBITDA.
The survey results:
The low-end: base salary of $100,000 and bonus of $75,000, $175,000 total. The high-end: base salary of $140,000 and bonus of $210,000, $350,000 total.
Top independent LBM companies’ base and bonus compensation ranged from $175,000 – $350,000. A difference of $175,000 between the independents.
BMC: $135,000 base and $35,000 bonus, $170,000 total. (Bonus calculated by a region, not the P&L of the location.)
Builders FirstSource: $100,000 base and $35,000 regional compensation, $135,000 total. (Bonus calculated by a region, not the P&L of the location.)
84 Lumber: $70,000 base and $180,000 bonus, $250,000 total. (Half of the bonus calculated on gross margin goals, paid monthly and half on profit, A/R, inventory and safety.)
US LBM: $140,000 and 25%, $175,000 total. (Bonus calculated as a percent of base salary.)
The large national LBM dealers base and bonus compensation ranged from $135,000 to $250,000.
There is a difference of $215,000 from the low end of the national LBM dealers to the high end of the independent LBM dealers.
The compensation differences make complete sense: business models, the market and the type of talent needed are all highly variable. Focus on collecting the relevant facts and the actions needed will become self-evident.
The driving factors:
- What is the competitive edge of the business model on its own, without the General Manager to attract talent and customers?
- What resources in leadership, structure and training are the company providing?
- What are the levels of entrepreneurial talent and autonomous experience expected from the General Manager?
- What are the gaps in the business model the General Manager is expected to fill?
- What is the competition offering this talent?
- What does the talent want that the competition is not offering?
“While the right design is essential, it is only half the battle. It is equally important to put the right people in each of those positions.” – Ray Dalio, Principles: Life and Work
Owners/leaders: If you are pleased with the return on investment and profits on the bottom line, do not change anything. Well done being a great business builder! If not, focus your financial investment on getting the exact talent and skills needed. Remember, it all starts with the right leader. Don’t hesitate to reach out to the Misura Group team to learn more about our process and 1-year guarantee on excellent industry leaders.
“In life, you don’t get what you want. You get what you think you deserve.” – Teddy Roosevelt
General Managers: Know your industry value! You will be spending 30,000 hours over the next 10 years of your life on work-related activities regardless. Make sure you know what you are worth and that you are valued for it. Reach out to our experienced Misura Group team to help you find great companies that value your talents.
Hire Smarter – Tony
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