There are some positions for which a commission-only structure makes sense. There are some salespeople for whom a commission-only pay structure makes sense. Every year, salespeople who would like to improve their sales results because they have very serious money concerns approach me for help. They have very serious money concerns because they don’t belong in commission-only sales, and it is morally reprehensible for their companies to place them in these positions.
Simple Sales Cycle Considerations
A product or a service with a long sales cycle is completely inappropriate for a commission-only pay structure. There is no way to act in a way that builds trust, creates value, and wins dream clients while eliminating the natural sales cycle—and the client’s natural buying cycle.
Placing salespeople in a commission-only structure causes them to have to behave in ways that destroy trust, to be aggressive order-takers instead of value-creators and, ultimately, these behaviors eliminate the possibility of developing the necessary relationships.
Transactional sales, deals that can be closed on a single call or visit, are easier to consider for commission-only. When no trust is required, when no relationship is necessary, when there is no complexity to the sale (like understanding needs, dealing with buying committees, understanding their motivations, building consensus for change, etc.), commission-only may make sense.
It is not fair, nor is it reasonable, to expect employees to be able to target, nurture, and develop meaningful relationships that sales are built on without giving the time and the compensation to do so.
Simple Hiring Considerations
The only people who should be commission-only salespeople are people who are experienced enough in sales to succeed in the role. These people know who they are; they aren’t taking their first job in sales.
In most cases, the people who should be in commission-only roles know that it is better deal for them than a base plus commission because of their experience and skill in closing deals. In these cases, both the company and the salesperson benefit from this pay structure—even though the company paying them is actually paying them more than they would pay to someone that they were paying a base and a salary.
The High Cost of Risk Shifting
Many companies believe that a commission-only structure shifts all of the risk to the salesperson, often without providing for an equal upside reward for bearing all of the risk. But they aren’t really shifting all of the risk.
By employing this structure, the company is subjected to the risk of having their reputation damaged by salespeople who act aggressively, as if they were making low-risk, transactional sales when they are in fact making high-risk, complex sales.
The company also subjects themselves to the high cost of lost opportunities. These opportunity costs are driven by high turnover and a compensation structure that eliminates good sales practices. By not having value-creating, relationship-developing salespeople, and by churning salespeople whose only means of survival is to behave contrary to what is right and healthy for the type of sale they are trying to make, the company risks losing opportunities that a better compensation structure would have helped to win.
Then there is the risk of causing damage to other human beings. By allowing these people to work for some period of time with little or no real chance of earning a living, they have pulled them out of the job market and away from the search for meaningful work. During the period that the commission-only salesperson is working without being paid, they still have to pay for the costs one incurs simply by being.
If You Are a Sales Leader
If the sale doesn’t lend itself to commission-only, and if the salesperson isn’t better off than they would be under another structure, and if you are probably worse off for paying them commission-only, and if it isn’t anything close to their first job in sales, then commission-only may be a reasonable structure (I’m making exceptions for first-time, commission-only jobs for kids that live with their parents who sell knives and other transactional sales).
If You Are a Salesperson
If you haven’t worked in sales for a long time, and if you haven’t had extensive training in sales, and if you aren’t selling something low risk that can be sold in a single visit, and if you are only taking the job only because you need something, and if you wont have a sales manager and coach who loves and cares about you and your success, you shouldn’t be taking a commission-only sales job.
If you really want to be in sales, find a job with a reasonable base (not necessarily one that you can live on) where you are going to be trained and developed by people who know how to teach, train, and develop real salespeople.
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Filed under: Sales 3.0