Commission-Only Sales Reps Bring in Both the Good & Bad
How much pay should be at risk for a member of your sales team? Pay mix can range from 100% salaried (as Dan Pink tries to argue in favor of in his book Drive), to 100% commission only. Going to the far side of the equation by offering zero salary, and only paying for actual sales performance can be a tempting model for many firms.
The risk of a company only offering straight commission to its sales forces is a combination of brand perception, recruiting, and sales rep behavior.
- If the firm is not paying salary to a set of its employees, what does that imply about the firm’s long-term sustainability? Does this mean that they do not have a set sales model, or that they do not have enough confidence in their growth to make a salary worthwhile?
- Next, what is the impact on recruiting? If the market is competitive for sales talent, will a firm be able to recruit top sales talent without offering a salary, and further a sales draw while the new team member ramps up? You are asking your incoming sales force to work for free while they get trained and on-boarded.
- Finally, how do 100% commission sales reps behave? When the rent is on the line, how hard will they push to make the next deal happen, and are you OK with that behavior. We have all dealt with “pushy” sales rep in certain situations, and 100% commission accelerates that interaction – to the detriment of the company brand. Companies will need to ensure that they have the appropriate controls in place to regulate sales actions to keep the selling professional.
Real Estate has long staffed its sales army with commission only sales reps. This model has allowed for a combination of the best rising to the top, plus others being able to participate at will at certain times. There are many real estate reps who work part-time, holding open-house events on weekends only while holding down a second job during the week. Long before Uber and other members of the “gig” economy – real estate offered a way for people to choose their hours and associated work load while helping others buy and sell homes for a commission.
Annuities and insurance also offer a means for people to try out sales as a position; with the company commitment minimal while the sales rep pays for their own training and licensure. During my training to hold a license to sell annuities and life insurance in the state of California, I learned from my instructor that 80% of his students would get their license, sell 3-5 policies, and then never work again in the field.
The 100% commission model meant that the other 20% would continue, while the 80% that did not have the right fit for the industry would self-select out. This is the flip side of the turnover rate found in sales roles that also pay a base salary, and potentially a draw – 20% turnover with 80% remaining is the median based on research by the Sales Management Association, underwritten by Xactly.
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Offering only 100% commission positions can fit in certain situations. Key things to remember:
- If the employees are not fully committed, you could be wasting good leads on people who do not feel a full obligation to the firm.
- As the month winds down, sales reps that need to make a mortgage payment or a rent check might engage in questionable behavior to get paid.
- Be ready for a constant influx and outflow of sales reps. Yes, the top ones will perform and stick around – but you will need a well-oiled hiring and on-boarding process to manage in and manage out the people who are just dipping their toes in the water.
- There will be zero loyalty, and the second a better opportunity comes along, that sales rep will move on.
It might appear that paying only on commission helps alleviate the risk of paying a salary to someone who never produces, but it comes with additional risk of its own. There is always a trade-off when hiring someone to represent your firm – be sure that you are comfortable with it.
Designing Sales Compensation Plans
With careful consideration and strategic design, you can use incentive compensation to inspire your teams and empower them to perform above and beyond the competition.