What Would Happen If…
Doyle Slayton | Apr 16, 2009 | Comments 70
I have had a recurring thought over the last several months. What if all sales jobs were commission only? It is a question that generates a variety of cause & effect ideas and implications. I knew it was time to share this discussion with our readers when I received the email below:
Doyle,
I have enjoyed being a member of your group, appreciate your efforts to provide a good forum, and follow a number of insightful discussion threads (I am on the finance side of the table, and trying to learn the sales psyche to better work/support that team). I wanted to run something by you directly, before throwing it out to the wolves… ;>
Basically, do you believe that a company can put together a sales comp plan that is commission only, and still attract good talent? Let’s assume that the product that they would be selling is good, and that a market exists (even in this tough economy, or better, even more so because of this economy). Let’s also assume that the plan is fairly aggressive in % earnings/sale, and that some warm leads will be provided.
The biggest hurdle is that it historically, the sales cycle can be long, but that could have been driven by the original target market and pricing, which should change.
Any comments/suggestions you can spare on this would be much appreciated, or if you have other creative suggestions, I am open.
Thanks for your time,
Bob Light
So… What do you think? What would happen if all sales jobs were commission only?
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Filed Under: Blog • Featured • Leadership • Reader Questions • Sales
I like it, but, have questions. Sounds like there is a marketing plan in place that’s a plus. What will it take to make these sales how much will it cost to make the sales and who pays for the expenses? What tools will be necessary to be successful, are they provided? And the big question remains what is the commission, are there residuals available?
It boils down to risk and reward. Sales people will weigh it against competitive situations and decide. Its incumbent upon the employer to offer what they feel is fair and employees decide. Am I right?
I’m of the opinion that all sales positions are commission only, even if you receive a “salary” try not selling and see what happens to your salary. Don’t fool yourself into thinking that there is security getting a salary in a sales position. I’ve been a straight commission salesperson for over 18 years, since I’m willing to work on a commission only plan I can command a higher percentage of the gross margin. If I sell, I have the potential to make more. It’s been successful for me and I wouldn’t want it any other way.
Good question. Let me answer with another question. What do you think would happen if all the exec comp was 100% based on company performance. Or what if the workers in the plant had their pay completely based on how much was sold? After all, the quality they generate impacts the sale as much as the rep, no? For that matter, let’s just pay doctors when they heal their patients, and not when they can’t.
I think we all know thw answer to those questions. So why should sales people who’ve invested in university education, training, experience, etc, be asked to take risks that other professions aren’t?
I think you are describing a situation similar to the direction things are already headed. Employers are already doing what they can to reduce their risks. For example, considering dropping healthcare benefits for their employees. Another example, the move to more outsourcing or contract/freelance labor.
Anyone can easily see the temptation to reduce risk by converting to 100% commission. So to answer your question, yes it can be done.
But to ask another question, what will be the result?
I believe it will create 2 castes of sellers. The bottom feeders which will be in continual churn vs. the elite sellers that have enough cushion to weather through the long sales cycle. However, that elite squad will only be there if in fact the product/service has real value and delivers on promises made.
A few facts to support my opinions:
1. Recruited and trained 40,000 independent insurance agents
2. Worked as an independent consultant since 1995
3. Developed compensation plans for many companies
ALL of these situations are results-based … commission-only … with the only exception being a draw on future commissions when the sales cycle is too long.
When does it work? When management puts in place the right structures – recruiting the right people – training as a process rather than an event (product AND sales training) – prospecting assistance (leads as well as tools other than cold calling) – and most importantly, an accountability system to ensure people do the necessary activity to achieve their goals.
When does it fail? When management is unable or unwilling to do the above!
A colleague of mine once said, “Show me the plan and I’ll show you the behavior.”
If there is enough low hanging fruit to sustain a rep while the larger deals are ripening, then yes I would go for it. Commission only is a gutsy move. So only the people with guts will do it.
Doyle and Bob:
I have been designing compensation and performance management plans for organizations for almost 30 years and this question periodically shows up- Shouldn’t all sales people be on commission or highly leveraged plans? My answer remains no for some of these reasons:
The compensation plan for any job should take into consideration a number of factors like:
· Barriers to entry. Barriers to entry describe the skills necessary to perform the role. In a non sales example the barrier to entry to being a doctor is quite high; four years of college, four years of med school and then a residency. And that is if you choose not to specialize!
· The length and complexity of the selling cycle. Some highly complex products and systems may have a selling cycle that takes weeks or months. It may also require a team to consummate the sale rather than just an individual no matter how talented.
· The salesperson’s control over critical factors like pricing, delivery, terms, etc. The less control they have the more protection in the form of a base or draw should be available.
The job of a good sales compensation plan is to guide and direct the sales team towards the desired action. In truth that is the intent of any good compensation and performance management plan, we just don’t execute them very well.
I have worked in industries or with clients where their sales team is made up of people with technical degrees selling into to very sophisticated systems. Rarely are those individuals going to give up a base salary of $50,000 plus coming out of college to go into a commission only sales job.
Some of the highest paying sales roles have low barriers to entry and very high turnover- think real estate and insurance. There are very few people making really big money.
A well designed sales compensation plan takes into account all of the factors I mention plus a few more. It needs to be fair to both the company and the employee, it needs to reinforce the right things, and it needs to retain and guide your sales team.
Many would tell you that commission only is at least partially responsible for our financial crisis. Mortgage brokers and loan processors were highly incented and leveraged to get loans on the books- not necessarily good loans. Collecting on those loans was somebody else’s problem. Remember with sales compensation more than others you get the behavior you incentivize, so be careful what you ask for……
Mark F Herbert
New Paradigms LLC
Anytime the employer says “commision only” the employer is admitting that he has got no money. My main concern before taking any job is whether the company is financially solvent.
Many of my comments have been made but one thing I will point out in Commission Only plans. The unintended affect is folks tend not to worry about customer service or relationships when it’s all about moving on to the next sale. Even if there may be some follow-on revenue, often times sales reps will head to where the bigger opportunities are in the pipeline leaving a customer ripe for competitors.
Mike D. Merrill
http://www.mikemerrill.com
twitter @mikedmerrill
I have been in sales since 20 years. Commission is a good term, provided it is linked to activities, efficiency, and final sales. usually people tend to go short cut when ever high incentives are announced. Durability, customer satistaction, service level, delivered value, all ignored when we push people on hard core selling, that is only result. The sales team will perform their job as directed, provided the environment conducive to exhibit their skills. It is good to have such plan to achieve short term objective, nevertheless, the percentage can increase and that too for the short term. Once you achieve what you wanted in short term, one must have the ability to role back in to directed, efficiency, oriented selling procedure.
Any kind of plan like this denotes that the company does not want to make an investment and is not in it for the long term. The old adage of you get what you pay for rings LOUD. No investment; no return.
If straight commission were the plan, I’d become a manufacturer’s rep. Income is amazingly high if you go out and sell so why even limit yourself to one company?
Of course, that means a company gets only x % of my time, can ot expect me to pioneer new products, new lines, new channels because on straight comission, its not worthwhile time wise for me to do so.
Humm, want dedicated sales folks then – OK thenpay for them as in salary, expenses and a decent uncapped commission plan. Growth is in change management, not just in selling the same ols same old. Growth is in servicing customers, developing them to become larger accounts.
Get the message – Starght commission gos straight down the drain when new products that need market time, sales time are part of the equation. Today, competition is the web AND SELLING IS EVEN MORE DEMMANDING RE SKILL AND TIME.
If I’m on my own then I’m becomming a manufacturer’s rep, not a single product-company sales person.
Okay the issue is commission only or salary & commission. I agree with Neil why would I stay with one company why shouldn’t I just become a mfg rep? If a company does not feel it is in their interest to PAY a sales person and is just relying on paying commissions they can expect that unless they happen to get a superstar they are going to just get by, maybe that’s okay with the company but I think not. They need to pay the sales person an adequate salary and have a good commission base plan along with all the benefits every other employee is getting. Why is it always sales that has to take the hit? One thing everyone needs to remember, “IF THERE ARE NO SALES THERE IS NO BUSINESS”. So doesn’t that make the sales person one of the most important members of the company, I think so. Therefore that sales person needs to be taken care of and in turn do the best job possible to make that company thrive, so that a question of whether to switch to a commission only basis will not raise its ugly head. To me the better the compensation plan the more secure the sales person feels knowing that just because the there is something beyond his control happening that he is not left without money. There are many things that can be controlled by the company that could make it harder to sell the product for the sales person, one item could be greed on behalf of the company and they want to sell their widgets like they were gold and they give no room for movement and the competitors are selling their widgets as a commodity and pricing is reasonable. Both products are produced the same using the same material and technology everything is equal but the price which is set by the accountants. Hmmm… as a consumer I am going with the reasonably priced one. So the commission only sales person just lost his income for the month, he still has to put food on the table, pay the kids schooling, insurance bill is due, car payment, utilities etc. While the accountant or whomever set the pricing got his salary and has no worries about his bill and living expenses because he got paid.
So let’s get real if a company wants to be more commission oriented then they need to really take care of that sales person in the way of a salary & good commission plan well thought out so that you don’t end up with a sales person having to work as a pizza delivery man nights to make sure he and his family have some income.
This is a wise question, with the capacity to challenge the status quo – and don’t let us confuse the status quo with ‘best’ or ‘empirical truth’. Corporate systems are built for a particular hierarchical kind of control – which has its own value but also considerable drawbacks. I believe the model is overdue to evolve.
We make a mistake if we think we can treat all roles ‘equal’. May I compare the roles in the business life cycle (eg admin, sales, support, management) to children in a family? Whilst we have an overall outcome in mind, children respond in different ways to different treatment. In the same way, a successful business outcome depends on working to the different motivations of the various functions, towards a united purpose.
While a wise manager will make each function (eg administrative, sales, management) his “favourite child” (appreciating each one’s value), each type responds to a different fuel. The fuel I speak of is different shaped remuneration, incentive, forms of appreciation. N.B. “One size fits all” approach may appear sufficient because you’re getting some results, but try motivating a salesperson with the motivator for an administrator and watch the results nosedive!
I think Bob’s question and context of having a good product, a real market, a plan with aggressive earnings/sale, even some warm leads, is very positive. I think the spotlight is being put on productivity. The old factory-style model (clock on/off, fill your quota, fill in time) is long out of date. Today’s world requires every person to be accountable and productive to the purpose of their role.
I worked for almost 20 years on commission-only – good commissions including strong bonus system (from building a sustainable business) – raised my family on it – on a pioneer concept that turned a huge industry upside down. The Corporate model has a lot to learn from the Direct Sales industry. It was noticeable when reward structures (fuel) changed to stimulate different purposes, how the steam went out of it. I was one of the last prime movers and high flyers to leave, and the company remaining is a mere shadow of its potential in products. …So yes, you can attract great talent on commission only. One can be innovative to attract high flyers by a time-bound ‘wage’ to sustain them over the initial period, but I strongly believe in ‘growing your own’ stars! You get – no baggage, a pure heart of loyalty to the company, great attitude+learn=your own expert high flyers who carve a name for the company long term.
The risk takers are always due the highest rewards – but it must be regular and never defaulted on! The sales function responds best to a certain type of fuel.
May I suggest to anyone questioning this mindset, to read Dr Muhammad
(apologies)…Dr Muhammad Yunus’ outstanding story, “Banker to the Poor”, which success he has also demonstrated in western culture….enjoy! Yes I believe it is time for some deep questions on reviewing our current reward models. I believe we Humans were designed for productivity, achievement, creativity. Yes much of our collective genius has been ‘forgotten’ but we can awaken it. The right rewards/fuel does this. My take on this question is, “Are your reward structures really empowering our people to fulfil their potential (and therefore many bank accounts)?”
My thoughts are intentionally simplistic, to challenge the roots of some of our assumptions.
It seems that responses are dependent on the type of sales each person is in. My sales are not instant. In fact they are somewhat technical, not direct but go through carefully managed indirect channels so straight commission really is not a motivator.
If the sale needs time to create and is based on consultive selling, then straight commission simply does not allow for taking the time to succeed.
Maybe we can list out types of selling, commodity, insurance, what ever and decide what works best for each. I’m very curious on what we would find even form superstarrs opinions. Systems sales v non systems sales, tech v non tech, software v machinery – lets start thinking this through and then offer some guidance based on what vit takes in time, expertise, educational background to get to yes. And of course, how much is the product or solution – that too influences how fast a sale can be made and even if it will be tried or made by a person depending on straight commission.
I would go 4 it. 1 condition: I would ask to share the costs (travel…) for 1th 3-6 month. If company would belive in this “sales-project” – they should agree. I would even agree to give back 2nd (m3-m6) money if – after 6 month – I would decide to “stay”.
I have just converted the remunerations of one of my recruiters to only commission. She has worked as a recruiter with me for 15 months on fixed salary + commission. There is a history of business generated by her. I have converted into only commission and I feel it is fair to both company and the recruiter. She stands to earn more because she is carrying the risk.
My worry is that I have no control over her time now. She will now work as per her own priority and not as per my priority. My hope is that I will give her adequate money making opportunity to keep her interested.
My main concern about relying on commission is that it encourages rog agressive selling which doesn’t help the image of selling.
I’m currently doing a Masters Dissertation into The Factors of Sales Motivation; so here are some of the respected theories.
Fredrick Herzberg (1968) suggests fiscal reward systems are hygiene factors, not motivators. Fiscal reward is necessary to meet our basic human needs (Maslow, 1970) but elevated fiscal rewards only generate a short-term movement in behaviour. Alfie Kohn suggests “Incentive Schemes Cannot work” concluding punishment and reward are 2 sides of the same coin on the basis both are manipulative. Fiscal reward systems also reward the wrong behaviour. Salespeople become focused on the outcome (ie the commission) and not the method, this can result is unethical selling behaviour.
In an age of Relationship Marketing, where suppliers are seeking to build long-term partnerships with customers, based on trust and mutual interdependence; it’s difficult for customers to trust salespeople who are paid on commission, because they have incompatible motives.
High commissions attract the wrong candidates for the job; applicants are in it for the money not the desire to do a high quality job. To keep ‘this sort’ motivated, you have to keep the money coming. There’s also a strong body of evidence to suggest that once bonus schemes are removed, initially they become de-motivated, but once they’ve accepted it, they forget about the money and look for their kicks by doing a good job. There’s also no empirical evidence to suggest companies with high bonus schemes perform any better than those without.
An alternate solution is Transformational Leadership, a process of finding the salespersons emotional hot buttons. Once you press the right buttons you spark medium to long-term intrinsic motivation… a fire that burns long and bright, with little need for additional fuel. People then become motivated for the right reasons; work itself, achievement, recognition and inter-personal relations, the thrill of the chase and the satisfaction of doing a good job. What’s more, customers prefer the increased levels of commitment and engagement and the improved quality of service.
I would suggest you target long-term quality based on the input metrics, not short-term results based on output metrics. I guess it depends on what you want “short term results” or “long-term sustainable high quality results”. Paul.
Having led teams on the direct sales, operations/support and customer service side- I’ve observed the effects of comp plans through three different lenses. And- when reps are very highly commissioned it consistently drives some bad behavior. For example…Sales Reps more concerned with “the sale” and getting it in the system by the end of their comp period- and less concerned with quality and truly meeting the customer’s needs. Discounting often increases. Sales manipulation can occur. And, when some employees are on 100% commission and other employees have high base salaries- it does not create a balanced team environment.
As mentioned in many comments above, the comp plan design should vary based on the role, the type of sale, length of sales cycle etc. But, I recommend some balance of base salary and commission for all sales roles.
Marci Reynolds
http://salesoperationsblog.com/
Twitter: @marcireynolds12
My salespeople are commission only.
But they get a RESIDUAL commission as long as the client continues to work with us.
Intrigued? Check out http://www.tedleithart.com and if you want to know more (as in be a sales rep for me), call or write.
All sales jobs are not created equal therefore, all forms of compensation are not created equal.
I think most companies get it right eventually.
It makes sense for a Real Estate Sales Rep. to be 100% commissioned and it makes sense for an inside sales person to receive a base salary plus a small commission. Of course, in either case, if the individual is not producing, they will leave the job or be asked to leave.
One thing that would happen is slackers who think they can subsist on base salary alone will be eliminated. As long as there is an opportunity to get started, i.e, a descending base salary or draw, a salesperson who envisions they can be successful should not be deterred from the position as long as they see a decent shot at total compensation for the work they put in. Some issues regarding “employee” vs “independent contractor” status may evolve should the position carry benefits.
In regards to paying Sales Reps straight commission.
I can only speak about what works at our company. We have 8 Sales Reps and they are all on a 10% commission. We have generated an increase in Sales Revenues for 23 straight consecutive years.
When looking for reps to work for us I try to hire someone with a book of business if possible, otherwise we assist them in developing leads.
Our comp plan, for new reps, can consist of a base salary that diminishes over a period of time, say a year (or two if the candidate is really good) and is offset with a commission that increases to 10% eventually. All of the reps are on straight commission at this time.
My #1 Sales Rep has been with me for 14 years. We gave her a book of business and she has grown it quite well over the years. Now however, she is making far less due to the economy and other factors outside of our control. Fortunately for all of us she budgeted and saved over the years so is able to weather this condition.
Sales Rep #2 has been with us for about 10 years. He was with a smaller company and wanted more product offerings to sell, so he came aboard. He had a non-compete for his first year, so we underwrote him with a base for 1 year. He has since made a vary comfortable living for himself and his family strictly on a 10% commission.
My #3 Rep has been with me for over 12 years. Again a similar scenario as rep 2, but without a non-compete. He was given a small book of business and has grown that plus his own to a point where a 10% commission allowed him to let his wife stay at home and raise their 2 kids and send one of them to college already.
Rep # 4 was hired with a base salary to develop new business for us. After 2 years he made the switch to 10% because he would make more. He has been with us for 10 years and sends his son to Carnegie Mellon.
The stories are similar for the other reps as well. 4 out of the 8 came from similar industries. All have been with me from 2 to 18 years, myself 25 years.
During my tenure here I have had to let go of 4 for lack of performance. Another 6 left for a variety of reasons. 3 due to lack of making enough money and 3 to pursue other careers.
Is straight commission right for everyone, no. Is it right for every company, I don’t know.
All I can say is that it does work for us and the 8 reps that continue to sell for us.
PS, we are 2% over Q1 goal so far this year.
Mark,
This is Bob only responding. An excellent post. I tried to email you but your box was full. I will try to call later. I would love to find what you describe. I will forward my email to you later. Regards, Bob Getz
This question is typical of a Financial person who is trying to engineer his way to more profitability yet is too far removed from the reality of the field.
I agree with most of the comments on why Commission Only rarely works – especially the one about putting ALL employees on a 100% results-only comp plan.
The question to ask is: Why would a strong sales performer commit to you (the company) if you are unwilling to commit to him (via a salary). He has other employment options with real salaries, high commissions and maybe some attractive women in the office. The Salary is meant to recognize the value, training, market knowledge, relationships and all the other benefits that a rep brings to the table – which ENABLE him to sell. Very few products “sell themselves” without direct sales or extensive marketing. The Salary is meant to compensate for those items that are out of the Rep’s control such as: lengthy sales cycles, poor perception of the brand in the market, products or services that are incomplete or unstable, delivery organizations that do not deliver, competing and winning against superior competitors, etc. The Salary also allows the company to control the rep. Basically, once you remove the salary component from a rep, he becomes a Reseller, Freelancer or Distributor. Meaning that you have little or no control over how, when and to whom that person sells.
This is how the Commission Only rep will view the world: “I am running my own business and can do it the way I want and work as little or as hard as I wish, and be as unethical as I choose to be. I don’t need to follow their sales training because I know better. I can’t be fired because I’m not really ‘hired’ in the first place. They haven’t committed to me so I don’t need to commit to them. It is a pure mercenary role. Matter of fact, I can have two or three other jobs simultaneously to enhance my income potential – just like a reseller”. If that model works for you (i.e. in a commodity business), and you don’t need to control your sales efforts, sales branding and customer perception then good selling.
A better question is: “why are there so few Commission Only sales jobs”? You are not the first financial genius to think of this. It has been tried since the beginning of commerce.
The marketplace has voted and the results are in.
You stated that you want to “better support/work with” the Sales team. Why not have a conversation and ASK THEM what they need to be successful. It could be the start of your education into the “sales psyche”.
This question is typical of a Financial person who is trying to engineer his way to more profitability yet is too far removed from the reality of the field.
I agree with many of the comments on why Commission Only rarely works – especially the one about putting ALL employees on a 100% results-only comp plan.
One of the only ways it works are: Reps work in an office with constant management supervision AND/OR they are given some bluebird accounts or runrate accounts which generate a base level of commission already. (This is essentially a salary, even if the purists try to convince themselves otherwise). Problems arise when you run out of runrate accounts to allocate to new sales hires.
The question to ask is: Why would a strong sales performer commit to you (the company) if you are unwilling to commit to him (via a salary). He has other employment options with real salaries, high commissions and maybe some attractive women in the office. The Salary is meant to recognize the value, training, market knowledge, relationships and all the other benefits that a rep brings to the table – which ENABLE him to sell. Very few products “sell themselves” without direct sales or extensive marketing. The Salary is meant to compensate for those items that are out of the Rep’s control such as: lengthy sales cycles, poor reputation of the brand in the market, products or services that are incomplete or unstable, delivery organizations that do not deliver, competing and winning against superior competitors, etc. The Salary also allows the company to control the rep. Basically, once you remove the salary component from a rep, he becomes a Reseller, Freelancer or Distributor. Meaning that you have little or no control over how, when and to whom that person sells.
This is how the typical Commission Only outside sales rep will view the world: “I am running my own business and can do it the way I want and work as little or as hard as I wish, and be as unethical as I choose to be. I don’t need to follow their sales training because I know better. I can’t be fired because I’m not really ‘hired’ in the first place. They haven’t committed to me so I don’t need to commit to them. It is a pure mercenary role. Matter of fact, I can have two or three other jobs simultaneously to enhance my income potential – just like a reseller”. If that model works for you (i.e. in a commodity or highly transactional business), where you don’t need to control your sales efforts, sales branding and customer perception then good selling.
A better question is: “why are there so few Commission Only sales jobs”? You are not the first financial genius to think of this. It has been tried since the beginning of commerce.
The marketplace has voted and the results are in.
You stated that you want to “better support/work with” the Sales team. Why not have a conversation and ASK THEM what they need to be successful. It could be the start of your education into the “sales psyche
Having worked on straight commission in 3 different companies, I would definitely say it fits me well. I am self-motivated and confident and have always done very well with it. Is it a fit for everyone? Definitely not. Is sales a fit for everyone? Again, definitely not. I would suggest that if you find individuals who are self-motivated and confident, who believe in what you have to sell and are at least partially motivated by money, they will do well with sales. If they have a track record in sales, and a little money in the bank, those worth their salt will not hesitate to work straight commission.
I think it depends on the type of business and the maturity of the company. A start up company with a good product and many available leads is the type company where 100% commission would be effective.
A mature company with a large base of business usually is better suited with a salary plus bonus plan. A commission based plan with this type of company tends to overpay its sales people based on the large base of established business. This would lead to complacency.
There is an inverse ratio between length of sales cycle and ability to survive on 100% commission. As example a sales cycle of one day and 100% commission go together easily.
There is an direct ratio between company control over an employee and the salary/commission mix. You can also substitute employee loyalty in this ratio.
In a world where all sales jobs are 100% commission, there is a positive correlation for the best companies (best offerings, best commission structure, best risk/reward ratio of sales cycle to payoff) attracting the best talent.
People would buy more online where there would be less pressure. Or at least do MORE research online so that when they entered onsite to buy, they needed virtually no help and could avoid the “presentation”. It could work in some industries but not ALL. Maybe the better question would be “Would you still be in your field of sales if you were strictly commission?” My answer; No. The sales people who can cope with that compensation structure are already in those sales positions and (deservingly, for taking the risk) have the opportunity to make more money than most of us who choose base pay. But I’m a strong DI with a little S and that little S overides the DI when it comes to money!
Notwidthstanding the issue of typical sales cycles, from cradle to close, if you work for straight commission you need the following;
1) Solid management team with supportive infrastructure that is well turned and committed to well managing the sale process. (+Honesty w/ethics).
Make sure the Company can deliver and do what it says it can do.
2) A strong legal agreement with penalty clause that will protect sales person if Agreement is willfully violated including legal fees and court costs being covered. Don’t assume you will be treated fairly and all terms and conditions are well spelled out in terms of payment. Have your attorney review it.
3) Make sure if you bring a deal to them that is in their sweet spot (of capabilities) that they will act on it within a reasonable time. I have seen management take weeks to make up their minds if they want a large deal or not, even medium side deals. (Many are more risk adverse than they acknowledge and you learn that later the hard way) And, the delays caused good deals to go south and commissions were lost as they went unearned but to no fault of the sales person.
4) For the risk you take, commissions must be measured against those risks – in other words: HIGH Commissions not token amounts or why do it?
5) Believe in the vision and P/S. I have a company that sell IBM products and services. I have people working on straight commission that believe in the vision. No only do they get high commissions and fair treatment, they also get RISK STOCK for helping me build the business. I think it is fair. I know of no company in my 30+ years of doing this that gives high commission and risk stock but it proves to the sales rep that you value him. I believe if I take care of him, he will take good care of the Company but he is expected to perform.
6) A number of sales people can’t work mentally for straight commission as they have have trust issues from being burned in the past to they have families to feed. Make sure, as a salesman if you sign up, you are prepared for the critical performance requirements both for the Company and your family. Make sure the Wife/Husband supports your plan or you will have hell to pay and it will affect your performance. And, don’t play games with your boss – just because you work for straight commissions doesn’t mean you play golf any time you want. Give him honest work or don’t sign up and commit in the first place. That is a sure way to burn a bridge.
In order to attract the best talent, you have to have the best comp plans, benefits, training and leadership. It all begins with trust. It seems rather harsh and unrealistic to have a new employee with no training on the product or services he/she is selling to go make immediate sales, espeically if historically the sales cycles are long. If it typically takes 6-12 months to close an average deal, then there should be a base salary in place for that period of time. It can take 1 to 3 to 6 months sometimes just to learn the products/services you are selling, etc. This may or may not even include time for prospecting.
The base salary does not need to be equal to what their income would be if they hit their goals during the interum period, but it should be enough to cover their business expenses and personal expenses to support their families, etc.
Even if you hired the best salesman from your competitor to come sell for you, it would still take some time to get adjusted to the new organizations procedures, systems, etc. Lastly, if the salesman has that much pressure to perform, it WILL come across to ther customer. Instead of trying to find a solution that exactly meets the clients’ needs, they will be solely focused on closing the deal. They might get you a few sales early, but they will not be building long term relationships which could yield more revenue for the company over a long period of time.
It sounds like the leader is under some pressure for budgets and revenue and has not thought this through well enough. Keep searching for another alternative and don’t compromise your standards. Whether you stay where you are or not, people will respect you more and in the long run and you can hold your head up high.
If you are looking for ways to increase productivity for sales, I welcome you to give me a call to discuss. We might be able to help you achieve your top business priorities, 214-387-9960.
Sounds like we are thinking about going back to the 1970′s when cost of living was a much smaller percent of income. You only foster desperation and greed with a commission only program. The only sales people who succeed in a commission only program are the sharpshooters who will be with you for a short while, sell a bunch of stuff with a bundle of problems and then leave.
Hey Bob, Doyle,
Having been a commission-only type, and knowing one other commission-only type in a vastly different industry, I’d say it’s certainly possible to earn a great living that way.
My experience leads me to indicate that it’s not really the plan that creates success. It’s the person selling. If a company cuts a deal with a pro that believes he or she can make money under the plan, they probably will.
If a company wants to optimize their sales dollars, they can offer a number of compensation plans to suit various strengths and weaknesses. A lot of sales managers balk at this notion for a number of reasons. Some don’t want to manage a variety of plans, but you just use computers to manage the plans effectively. Other sales managers don’t want to deal with perceptions of unfairness if the plans deliver uneven results to the sales staff, but that’s overcome by being flexible and allowing people to shift plans (under reasonable time scales).
There are at least three parties affected by any sales compensation plan: The Selling Company, the Sales Agent, and the Buyer. The target is to keep all of these parties feeling like they’re getting what they need or want out of the relationship. If the compensation plan hinders the success of any of these three it needs to be re-engineered.
Tom Meylan
You may be now looking at a manufacturers’ rep type plan. Where your sales team are not employees and get paid on what they sell.
Gary Roe
What ever may be the commission structure offered by the company, they can not attract good talent for sales jobs with only commission. Nobody wants to work in an uncertain environment specially in the current economic condition.
This may be possible only if the person is having a second source of income to support himself. The person who is having a second source of income will not be able to devote his full time on commission job and will never do justice to his job. This is an idea which is being used by lot of companies but a fair comparison of sales talent working only on commission and sales people working on Salary basis can give clear indication about the type of people you attract for only commission jobs.
As a past Manufacturer’s Rep, salaried sales person, and Sales Manager; I have experienced many compensation plans. Usually a strong base salary coincides with a weak commission plan. Sales people get “comfortable” with their base, are less aggressive with sales, and become the 80% who earn 20% of the business. They learn to live within their salary and commission and are usually weaker sales people. Companies leave them in place until we have an economic turn down where they are then the first to go. The upside for the company is they retain more profits and control the sales person.
On the other hand, the successful commission only sales rep has the desire and drive to succeed if they take on this type of compensation. They also enjoy having control on writing their own paycheck. Of course the downside is the loss of control on the employee as they are usually a 1099, and more turn over can be experienced, especially when business begins to slow.
My system of compensation strives for the best of both worlds. I offer a base guarantee that lasts for the first six months. This allows the sales person the time to develop a clientele, start the sales cycle, and build his or her pipeline. After that, it reverts to a draw as there may be times where there is a lull in the completion of the sale.
We also offer a choice to the sales people; 1099 at a higher commission schedule or W-2 at a lower commission schedule to offset the taxes. We also offer bonus programs that pay out for individual achievement as well as team success. We also place a no-compete clause in our contracts to avoid the “manufacturer rep” mentality. We offer guest speakers related to our industry, seminars/training, and encourage them to become involved with network groups and trade associations. This adds a sense of belonging to the 1099 sales person and the company does pay those expenses. This compensation plan offers a sense of belonging for both the 100% commissioned and salary plus commission sales person.
Personally, I would rather be at a 100% commission or a small base or guarantee with increased opportunities for larger commissions, than to have a salary with reduced commissions that may limit my earning opportunities.
As many people have expressed, I think the industry being considered also weighs heavily into the decision on this subject. Is there a right or wrong answer to this question – No! But it takes a strong management team to place the right compensation plan together with the right sales staff to see them succeed which relates to the success of the company.
Besides, as management of a company, would you rather target the sharp shooter who is aggressive and strives for the hunt and expects to share in the rewards or would you rather have a full sales force of content farmers that can be replaced at any given time and expect they will receive their weekly paycheck whether or not they have closed any new business.
Ken Dixon
Why not give the sales leaders in your company a chance to share their perspective and offer suggestion and thoughts on your question? You might uncover some new information that could change the question that needs to be asked like: “What are some things we could change to ignite our sales people and re-kindle their passion? What are their issues and their concerns. They are your customers hear them out. Be the student not the teacher! Have fun with this!
Pay directly linked to results.
I often wonder why it is always finance types, or perhaps HR types, who think it is a wonderful idea, provided they are not included in it.
I have been in sales most of my working life, much of it as a business owner who only gets paid after everyone else.
Risk entitles the risk taker to a greater reward. Pay for performance is great, but would the bean counters actually allow the greater reward to happen.
How many times have we seen comp plans changed because sales are “making too much money”?
If a sales person is on commission only, who controls the deal?
Who owns the customer relationship?
If you arn’t paying the seller then if he/she leaves why wouldn’t they take the customer?
Who controls the sellers activities? No pay probably means little control.
Sellers spend a lot of each day doing non sales work, for non sales people such as filling reports, developing sales funnell information etc.
If you thought you had seen sandbagging in the past, you haven’t seen anything yet.
What happens when the sales person sells, but the company cannot or does not deliver? The tech. support team, or whoever drops the ball and no payment is received.
The sale was lost due to others. Many companies seem to have an unoffical sales prevention team, and they are active.
Is the seller paid if the company isn’t? Pay for performance means “individual performance” not team performance. If they sign the seller is paid.
Real estate brokers, stock brokers etc are paid for performance, run their own book and manage their own business, I am not sure how many comapnies would tolerate that many individuals.
Perhaps a problem going forward.
Lots of questions. I would prefer pure commission as long as I am allowed to sell and am not subject to a constant stream of criticism, suggestions, help, all adinistered at unending meetings
Good points.
So, pay me with some ownership in the company. Make that a component since my sales efforts are growing the company. Ownership retains the best because essentially your efforts are not rewarded temporarily, they also have a more permanent reward for the long haul
Also, how many of you folks do a traits assessment, not a personality assessment as a way to clearly determine if the person you hire is the tiger thats a great job fit for your market, your customers and your payment structure?
Non competes- In court in many states, they get tossed because essentially you are restricting a person’s right to earn a living.
It comes down to whats the product, whats the sales cycle time, investment, length, whats the best way to keep talent that can afford to take the time to deliver.
Hi Doyle.
Great discussion point. Having done ok in commission sales early in my career, I would be looking for a new line of work since commission is feast or famine. With today’s economy, I would assume more famine…
I have a family with two young boys to consider.
Regards,
Mark Secko
Mantralogix
P # 905-629-3200ext.227
msecko@mantralogix.com
http://www.mantralogix.com
Great question!
I have tried straight commissions in a couple of companies I have helped over the years.
Before I can comment on compensation I need to challenge the assumptions. In over 25 years now I have seen very few companies that developed products as solutions to burning market problems. What I have seen are products developed in the vacuum of the ivory tower corporate office ( or in the CEO”S shower) by engineers and developers who would not know a customer if they came into their space in the dark and turned the light switch on, people who don’t know what they don’t know. I have seen many products built that were “cool “or “obvious product line extensions” then thrown over the wall to marketing .In one instance our owners wife came up with a product that surely all other moms would want.( failed miserably)
Marketing was instructed to “create a need for this…” and then they list features and benefits, make some sell sheets, maybe train my team with 15 PowerPoint slides, then it’s up to sales to sell it.( figure it out) By this point money has been invested ROI’s developed ( again in the vacuum) and the heat is on, “we need to hit X units this month.”
With my experience in the consumer electronics industry, our goals were often built backwards. The steps were something like; we have a cool idea, we show it to an handful of our current loyal raving fan customers who say “ ya, I think that’s cool” , product management says well there are XX number of other customers like them and they extrapolate away to justify the R&D cost and cost to build. In about 18 weeks the goal for my team is presented to me like it was something research scientists developed and again my team was told to “make it happen”
As a consultant and coach helping companies, I would say less than 15% of new products are built from the market needs and market problems up. Therefore 85% of what the company throws at sales lacks true market data, and does not clearly state how it solves a problem the market has. The statistics are available throughout the web that over 80% of new product’s fail within 18 months.
So if the above (and it is highly likely the case) is true then a 100% commission compensation plan is neither fair nor motivating. Why? Well if any of your readers are road warriors like me, someone needs to do the work of understanding problems, and explaining how our latest widget solves that problem. Sales, because they are the most visibly accountable members on the team have to figure it out, and they often do. Since they are doing market research’s, marketing’s, and other’s jobs that do not instantly product a sale they must receive a base salary in relation to how competent or not competent the front end of your business operates.
If however, you have one of the 15% of companies who are actually building products the market needs, wants, and is willing to pay for, then a 100% commission pay plan is appropriate.
Doyle
I believe straight commission sales is the purest type for anyone in the sales vocation. The sales professional has the opportunity to garner a direct contribution to their bottom line based on their skill sets, traits and work ethic. One of the development opportunities as a sales professional in this venue, is to not become exclusively transactional. We have to continue to build position as the resource of choice at our customers, by learning new information, providing further education to our customer’s knowledge base, enhancing our sales skills and then getting the transaction to buy new shoes. As leadership it challenges us to set and maintain a direction that the company wants to go in. If the sales professional is selling to pay the bills, etc, they are very independent and have a tendency to go in the direction they want to for their payoff. There are several leadership, coaching and compensation programs that help in this effort for those of us in leadership.
Hello,
The straight commission question is always a good one. Unfortunately I do not believe there is a straight forward answer.
You have to take into account your product, territory, and selling cycle. Since I happen to interview sales candidates for my clients all around the country – I can’t help but look at someone who MUST have a large salary ($75-100K) differently than someone who is more interested in the commission plan.
Maybe I am missing something but I thought a salary is meant to get a sales person through the slow patches. The real opportunity in any worthwhile sales position is the commission package.
I am concerned that too many sales people in too many different industries are too concerned with salary. If you are looking to hire and they are too focused on salary – that is a potetnial red flag.
However, business owners and managers have to be fair. If you are going to have an aggressive commission plan – it is important to clearly describe your plan and not to play games by changing it half way through the year.
In my opinion real sales people are the ones who step up to the plate and go out and make their money. If you have an $85k – maybe you don’t have to work as hard.
Continued Success,
Tim
Small salaries are not simply for ramp up time or to get you funded until the typical sales cycle is met or you build a pipeline.
Salaries may for reporting, meetings requested by management or internal staff and gives the rep. fair compensation for his time. He too is a professional and I have been on both sides of this issue.
Salary also pays the sales rep $ for his time and energies in general as there are a lot of unethical people out there that make Agreements, deals get closed and those “people” cheat the salesman out of his commissions. I have personally earned over $1M dollars in commissions, that were in the comp plan, contracts were accepted and approved by company and company failed to pay commissions resulting in legal action. Their argument was that if they paid me that much commission, I would make more money than the Officer cheating me out of my EARNINGS. If that is true, why did they both create and sign the Agreement?
So, if a rep has a salary, at least he gets paid something for his time.
It is not pleasant to spend months in a law office or court house trying to collect money you earned in the first place.
T
Having spent the better part of 5 years in a commisson only type of industry, I can confirm that you will attract some snippers for sales talent. However, I can also confirm that you will see a high percentage of turnover with that sales staff as well. The need to build long term sustainable business pipelines is in the hands of the sales rep, who’s production and growth is tied directly to the ability of the backoffice/manufacturing team and managements ability to produce and deliver the product/service being sold.
I personally enjoyed working on commission only type program, but it was largely due to the quick sales cycle (30-45 days), my ability to control and manipulate just about every step of the sales cycle, and the large rewards as a result of my ability to drive sales and develop relationships! If I were limited to just selling and dealing with issues from the client when something goes wrong, then I wouldn’t even consider this type of comp plan.
I just had a similar type of offer presented to me while interviewing with a small software company in New England. I made it clear to the CEO that this type of commission structure was unacceptable to me in his environment due to the launching of a new product to the marketplace.
Having spent the better part of 5 years in a commission only type of industry, I can confirm that you will attract some snippers for sales talent. However, I can also confirm that you will see a high percentage of turnover with that sales staff as well. The need to build long term sustainable business pipelines is in the hands of the sales rep, who’s production and growth is tied directly to the ability of the back office/manufacturing team and managements ability to produce and deliver the product/service being sold.
I personally enjoyed working on commission only type program, but it was largely due to the quick sales cycle (30-45 days), my ability to control and manipulate just about every step of the sales cycle, and the large rewards as a result of my ability to drive sales and develop relationships! If I were limited to just selling and dealing with issues from the client when something goes wrong, then I wouldn’t even consider this type of comp plan.
I just had a similar type of offer presented to me while interviewing with a small software company in New England. I made it clear to the CEO that this type of commission structure was unacceptable to me in his environment due to the launching of a new product to the marketplace.
I sell for several companies and I work straight commission for all of them.
When a company is straight commission then anyone can sell their product.
This works for me because the wide array of people I work with have a plethora of needs and I am able to help them in many different ways.
Some will talk about quality of sale it isn’t a problem because the salesmen over promising is going to be out of business quickly.
when you have one salesmen who talks to close to 300 people a month he is bound to hear of many needs he is unable to resolve when he is bound by one company.
I am a salesmen and I connect people to the answer to their problem the more answers at my disposal the more problems I will resolve.
From that is born a connector not a salesmen and a connector needs to be on commission so he gets paid for what he does. A connector will make many connections that do not benefit him directly. Because his reason for being is solving problems by creating the best connections. The more problems he solves the more people will tell him there problems in hopes of getting connected to the answer.
Straight Commission is great just remember to bring up sales people.
Give them just enough to keep them hungry for a year then let them fly.
The connections they made the first year will keep them alive the second year.
And if there any good at listening to problems the third year they will be king of the world.
Sales through listening there is no other way.
Jeff
If *all* sales jobs were commission only it wouldn’t be much different than it is now. Good salespeople would succeed and … oh wait … bad salespeople would DO SOMETHING ELSE.
What a refreshing thought!
I understand what Chahid means about feeling protective of the image of selling if Chahid is a sales professional.
My job title didn’t say anything about “sales” when I worked as a photographer at the baseball games for the San Francisco Giants, even though my job was to take pictures for the fans to buy. During my first homestand of my first season, one of the ushers heard me giving my “pitch” to some of the fans whom I had just photographed. He was trying to pay me a compliment when he told me that I was a very good salesperson. I actually had to hold my temper! I was offended!
Was I pleased to learn later in the season that I was the top seller among the photographers? Of course, I was. Did I want to be seen as a “salesperson” or, and the term makes me gringe, a “good closer”? Oh, heavens, no! Sales really does have such an image problem that the kind of people that I think most of us would buy from shy away from the business.
I also think that I behave in a very typical manner when it is my turn to be the customer. I buy from people that I like, even if I could get a cheaper price elsewhere. I do not agree with those who just want to hire “good closers” for their salespeople because I want to be the closer as the customer. What I look for in a salesperson is a “good opener” so to speak.
Doyle and all,
There have been a lot of great comments on both sides of the Commission equation, and I believe that some people do well with 100% Commission positions. God bless those of you who fall into this category, and I wish you continued success in your respective ventures. I don’t want to get into a discussion on how to and not to sell; rather focusing on how comp plans are structured.
My Sales position at a software start-up ended last October, and some of my posts had resulted in contacts with people and companies offering 100% Commission positions. It would be one thing if these were recognizable companies, with market presence, and an efficient lead attraction system in place. However, the companies that I was speaking with were new, with little or no market exposure, and little lead generation and other marketing plans in place. I would be providing my own leads, and without any other lead generation in place, would add to what would already be a long sales cycle.
With business the way it is now, Good sales people will be separated from bad automatically, regardless of their comp plans.
We all have to pay our rents/mortgages, groceries, car payments, and other recurring expenses.
My thoughts are going unilaterally to a 100% Commission model for all sales people in all industries, will do much more than weed out bad talent. Those of us who deal with longer than long sales cycles may be forced into other occupations.
I believe commission-only would work if, as several have already said, there are some things in place such as: training, lead generation, and incentives [a bonus structure. Most direct selling businesses are just that: commission-only sales businesses – you don’t earn if you don’t sell…and if your downline doesn’t sell – you earn by direct profit from person-to-person retail selling, and in this structure you earn bonuses and commissions based on the sales volume of your downline. And it works. There are some direct selling companies right now whose independent distributors are doing quite well even in this tough economy. In the scenario of say a car dealership – commission only would be attractive if there were a draw against future sales so that the salesperson could eat during a bad month, an incentive structure to reward extra work, training for continual improvement…and the same company benefits that salaried and/or hourly employees get in regards to healthcare and such.
Who is paying for the marketing?
If your paying for marketing you need more than straight commission.
For the long turn around sales job. The employer needs to offer a salary for as long as it normally takes to get a deal or two off the ground.
It’s the price they would need to pay to get a salesmen that is an expert at there product.
But once you have gone through a full business cycle, Even if the sales cycle is 18 months the above sales men needs to go commission.
My experience dictates that the higher quality sales person is attracted to salary + commission compensation plan.
A tenured sales person with a documented track record of overachievement wants some carrot, commitment or trust from his/her employer. If an employer does not offer a salary, there is none of the above. I firmly believe a salary attracts quality.
If a salary is not part of the package, as a sales manager you will find it cumbersome to hold mandatory team meetings and trainings, paperwork, etc, as these events are diminishing time in the field and therefore, reducing postential earnings.
If you have an unlimited amount of product to sell, a commission-only structure is more viable. In every hotel, you have a limited amount of product and the limitations are dictated by total # of rooms, group ceilings, FIT ceilings, rate and other restrictions, etc. so a commission-only comp program will make the management of such a program especially difficult.
In addition, attrition, current and future, is an aspect of the comp program that would make it difficult for the salesperson. Depending on the hotel product, payoff of a booking could take years (5-10 easily in convention hotels).
Lastly, we would need to “deal” with the Third Party issue in some acceptable manner. Do they get a smaller commission? Is there enough left to give? Will it be so small that the Third Party market gets much less attention?
The discussion is much deeper than this and I have not perused all of the above comments but due to the significant # of responses, it appears to be a VERY thought provoking topic!!
No offense Ted but after viewing your website, I still don’t understand what type of business you have and frankly, it’s very similar to the commission only employment ads running now that I avoid like the plaque.
Most reliable, solid companies offer a base..again, anytime I’ve searched for a new position, I run the opposite direction from anyone offering commission only positions. Not because I’m not capable of meeting quotas or closing big deals…I just know that after 20 years in a sales position what motivates me and that’s a company that is willing to put their trust in me in the form of a salary plus comp plan. Show me a commissioned based sales rep and I’ll show you a used car salesman mentality.
I looked at the business that you are in. It looks like a b2b and a numbers game. See plenty, close some. Customers do get printing done so is it a matter of where?
Have you ever sold a business system such as automation in a plant? Corporate wide security management? Its just not the same. Straight commission in a consultive selling environment where the result is not a commodity , its a part of the operation of your prospects business takes time, multi decision makers, budgeting – On straight commission, nobody can afford the time to close and self fund it for a company. Nobody!
Lets great real here – Target market, type of sale, process all need to be considered when determining compensation. Stop this great sales people have no fear of straight commission stuff already. Its ROI and time it takes to get the sale that matters.
If a sales person is an employee and not an owner, pay us in salary, invest in us because we are after all your engine for building profits.
No surprise on the number and fervor of responses.
I think Bill Merrow put it very well. My own experience is 25 years of either selling as an independent contractor or hiring and training both employee and independent contractor reps in an industry that is primarily commission only. Let me assure your financial side that there are many hard cost issues that are never easy to resolve.
Straight commission is not for everyone – for some it is the best and only way. For an employer, best prepare for continuous high turnover unless you are willing to take the time and spend the money to hire correctly, and to manage properly.
I think you have gotten a great range of advisers, and I leave you one question – Are YOU willing to be compensated by postiive results only, and to personally bear the full cost of sales operations?
Good Luck.
Paul your material is excellent. I was taught this many years ago and latched onto it as the guiding light for leading my teams in enduring success for many years – doing things right, for the right reasons. The point of my reply was to challenge assumptions and simply answer the first part of the question “is it possible to attract top talent…?” However it is the driving power of the Motivator factors (supported by Hygiene factors) that will set an organization up for enduring success through its people.
Liz,
Thank you for your kind comments.
I’m currently engaged in a major research project into ‘The Factors of Sales Motivation’ Whereas Herzberg’s work related to ‘employee’ motivation (from a behavioural psychology perspective). My quest is to provide a new Motivation Hygiene Model specifically dedicated to Sales professionals, based on organisational theory.
I’d like to invite you to participate in this very important research; so if you’re a member of LinkedIn, simply search for my group called “Sales Motivation Research” and request to join. Your request has already been preapproved.
Taking part is simple. Each team member completes a 20 minute questionnaire and they will receive a summary of their scores for comparison against the whole survey results. Managers will receive a new Hygiene Motivation Model providing a new order of sales motivation factors. Aggregate team results will be submitted to Managers to see how their team compares to the survey populous as a whole.
This will be a journey of self-discovery for Salespeople and Sales Managers alike, and also an opportunity to benchmark attitudes to various motivational factors. For some this will simply confirm what was previously assumed. For others it will be an opportunity for ‘individuals to address boundary thinking’ and for managers to take ‘intervention steps’ to better manage team morale.
Regards
Paul
Thanks to all those that have shared their time and experiences on this question. What a great range of responses, both passionate and pragmatic, and indeed, such an open question has no one real answer. I did have a few comments back.
First, my question arose not from any immediate personal desire to implement such a plan – ok, true, as a finance person I’m attracted like a moth to a flame to anything that shifts risk/cost away from the company – but from seeing (as I am sure everyone here has) many good people lose their jobs, concurrently with watching many good companies lose their financing or having their credit frozen, it seemed that perhaps this could be a win-win situation in the right circumstance. A company only pays when it generates a sale, and an unemployed salesperson potentially could make some money. This economy is brutal, yet with creativity, risk asumption and hard work by workers and companies both, we can get through it.
Second, as reconfirmed above, my job is to provide financial administration (and HR, and contract negotiation support, and whatever else needs to get done..). However, instead of posing this question to my fellow brethen, I knew I’d get a much broader and inciteful response from asking those that live and breath selling, and the compensation thereof. I was right on that!
As far as personally working on that basis, to some extent I do, as if we had no sales, and thus no cash income, there is nothing to cover my check. Clearly sales are critical to the success of any company, and I both respect and understand the difficulties faced by salepeople.
Thanks Doyle for posting this, and to everyone that has written in.
Bob
It was a great question and fascinating following all the responses.
You have plenty of comments, and I did not read through all of them. My take is simple.
A commission only position works in a short selling cycle. As a mater of fact, an attractive commission position will get you a sales force who will maximize revenues. A say “attractive” because the commission rate becomes the key ingredient for obvious reasons.
The pros:
-creates a completely variable cost for your sales force
-added flexibility to make changes to the sales force easily.
Cons:
-you will maximize revenues but no necessarily optimize revenues, creating an environment:
*leading to less attention to servicing accounts
*overloading the customer with a problem in the future
*little regard to placing the product in the proper locations (erosion of the brand).
*potentially unstable work force through turnover if the product line does not produce the results
Short term gain can be long term pain.
There also is a loss of managerial control, although a good product and a strong compensation package regardless of the arrangement negates this issue.
How to minimize issues:
-create a draw plan if the selling cycle is long
-sales management must be very engaged in monitoring:
*sales increases by account
*new account process
-sales management must:
*be active with field travels
*pursue proven sales agents who are used to a split arrangement and show them with the numbers how they are better off with your plan
I have sold and maanged under both a 100% commission and a high salary with a bonus. There definitely is more incentive to put in that extra hour at night when you know there is a potential to be rewarded directly for that extra effort.
Hope this helps. Good luck!
Having received all this insight. The killer question is:-
What are you going to do now?
I think we’ll all be very intrested in your responce.
Regards
Paul
When a person is hired by a company they receive, at the end of the week, a salary, whether they perform or not. Why should a sales person be any different? To pay a sales person only at the closing of a deal is to make them responsible for the product, pricing, position, support and where the product is in relation to its competitors. This would mean that no other employees are responsible. Paying a sales person only when they close the deal would mean that all efforts and skills that it takes to close this business has no value. This would dilute the sales industry because why would highly intelligent and motivated people enter this industry when how they get paid would not even match the most junior position who expects to be paid at the end of the week!
if you hire correctly, provide mentorship in a rough economy with a very modest base salary with a draw against commissions…then within 4-6 months you *should* have a pretty good idea if your commissioned sales people will be successful. URGENCY is the key to hiring salespeople and typically salespeople without urgency DEMAND larger salaries so they can cruise or work 9-5pm, etc…
you want to hire salespeople that WANT to make a lot of money. so aggressive salespeople will DEMAND an aggressive commission schedule with accelerators if they blow their quota and/or billings out…
Thanks so much for the blog article. Great.
The company brokerages network will provide you with access to some big pool of people who’ve the information about businesses for sale and buyers or investors looking for a company venture. By producing good use from the info you have, you might be cutting a provide and make a handsome profit out of the transactions.