For almost all businesses, and especially for small businesses, marketing and selling their products and services is the most important thing that they do. It is the paramount challenge. In recent years, we have seen significant changes in the way that companies market their products and services. The advent of the internet and social media has made it possible for even small companies to have global reach. For most companies, these new methods of marketing do not replace existing marketing channels, they just add to them. Even though we have the internet and all these great new ways to reach customers, for many businesses, direct sales are still the most effective way to sell. That doesn’t mean they don’t want to use the new sales channels; they just don’t want to abandon the tried and true. Sometimes, the customer just wants to touch it, or read the user guide, or have a live demonstration. Sometimes, the customer just wants to get comfortable with the company, and a real sales visit is a great way to do that. For some products or services, the sales cycle may extend over many months. The customer wants to be able to deal with the same person consistently during that time. And very often, the customer wants to continue to deal with the same person after the sale. One of the most important considerations in hiring and managing direct sales representatives is how they are going to be compensated. How much of their income will be fixed, salary in other words, and how much will be incentive based, commission in other words. To determine this, companies will need to consider factors about how the company wants them to behave and what their duties will be. Companies will also need to consider what competitors are doing. A good sales representative is a very valuable employee and employers don’t want to lose them to a competitor.
Commission is a method of payment for a service provided to your business. All business services have a cost. For example, fees are paid for each of these business services – insurance, banking, accountants and mechanics. To attract good salespeople, company must have an appealing compensation plan. Ideally sales representative should be paid in such a way that what they want to do for personal interest and gain is in the company’s interest too. Most companies focus on financial motivation, but public recognition, sales contests and simple personal recognition for a job well done can be highly effective in encouraging greater sales effort. To build a competitive sales force a company must pay at least the going market wage for different types of sales people. To be sure it can afford a specific type of salesperson, the company should estimate when the job description is written how valuable such a sales person will be. If a job requires extensive travel, aggressive pioneering, or contacts with difficult customers the pay may have to be higher. But the salesperson’s compensation level should compare at least roughly, with the pay scale of the rest of the firm. Sales compensation plans typically rely heavily on incentives in the form of sales commission in which the employee is entitled to receive usually by virtue of percentage of sales or profits made from sales, or the number of sales made.
However, some salespeople get straight salaries and most receive a combination of salary and commissions. Some firms pay salespeople fixed salaries (perhaps with occasional incentives in the form of bonuses, sales contest prices and the like). Straight salaries particularly make sense when main task involves prospecting (finding new clients) or when it mostly involves account servicing (such as executing product training programs for a customer’s sales force or participating in trade shows). Straight commission plans pay sales people for results. Under these plans, salespeople have the greatest incentive. Commission plans tend to attract high performing salespeople who see that effort clearly produces rewards. Most companies pay salespeople a combination of salary and commission, usually with a sizeable salary component. An incentive mix of about 70% base salary/ 30% incentive seems typical: this cushions the salesperson’s downside risk (of earning nothing), while limiting the risk that the commission could get out of hand from the firm’s point view. Today, tying workers’ pay to their performance is very popular. Indeed, with emphasis on competitiveness, productivity and delivering measurable bottom line results, the trend for virtually all employers is to tie at least some portion of their workers’ pay to the workers’ and / the company’s performance.
Pay systems are designed to attract, retain and motivate employees. The most important objective of any pay system is fairness or equity. Equity can be assessed on at least three dimensions; Internal Equity, External Equity and Individual Equity. Three methods employers use to compensate employees include salary, hourly wage and commission. The method you select depends largely on the nature of each job position. For example, commission is the typical payment method in sales positions while salary is typical in management positions. All methods have pros and cons, for example, salary is straightforward and not left to interpretation while hourly wages benefit employees who work many hours but are often subject to laws that may adversely affect employers.
Salary is the primary payment method for management and other higher-level employees. Salary is an annual total, not based upon the amount of time worked or productivity. Depending on the employer’s payment schedule, the salary is divided into equal payments each pay period. Taxes and other benefits deductions are taken out of this total. Any other pay, such as overtime, commissions or bonuses are separate from salary. Paid days off for salaried employment are not deducted from any paychecks.
Hourly wages are payment for each hour worked. Federal and state laws govern the minimum hourly wage amount and the employer cannot pay a wage lower than this amount, minus a few exemptions. Additionally, any overtime earned is subject to state and federal laws. The Contract Work Hours and Safety Standards Act applies to federal workers and contractors and mandates that hourly employees must receive 1.5 times his base pay for any hours worked beyond 40 in a work week. Many states and private employers have also adapted this provision into law or practice. Time off for vacation, illness or other circumstances is typically unpaid.
Commission is an amount of money paid upon achievement of a sale or goal. It is typically a fixed percentage of the cost of goods sold or the value of a contracted service. The actual amount of commission depends upon quantity and value of sales and can vary greatly from payment to payment. Commission may be paid as a supplement or in lieu of salary. Commissions are not required by the federal government’s Fair Labor Standards Act but are considered taxable employee wages. Commissions are earned by selling a product or service. Employees who are not involved in sales do not earn commissions, even if their compensation is based on a percentage of a customer’s payment or on the amount of an employee’s production. An employee is involved in sales when they are involved in exchanging a product or service for money or something else of value. The definition of sales also includes sales-related activity, like when an employee attempts to influence customers or clients to purchase a product or service. The term amount can refer to the quantity of goods or services sold, without regard to cost or value of the thing being sold. The term value refers to monetary value as opposed to other measures of value (such as merit or importance).
In the sales industry, one of the most heated topics of discussion is commission sales vs. salary sales. There are benefits to using both, but many people are hard-core advocates of one or the other. Some people believe commission is the only method of payment for true salespeople, while others would like to see a balance between the two. If you are trying to figure out which payment method to use in your company, there are things to consider. When it comes down to it, though, it really is a matter of preference. Although both have advantages and disadvantages, they are fairly equal.
When discussing commission sales vs. salary sales, it is important to take into consideration your employees. Would they be offended if you only offered them commission? Some people take this as a sign you don’t want to pay them the money they deserve. People may be afraid to sign on with your company because they won’t make any or enough money. On the other hand, there are some people who see commission sales as a challenge. They have to close as many deals as they can in order to get a paycheck. They don’t consider it stressful or worrisome, but rather a competition to see how well they can perform. If you choose salary sales in the commission sales vs. salary sales debate, you might have a greater number of people join your company. They see this as sort of a guarantee they will get some sort of payment. Even if the salary is low, it could be enough to sway employees. When using salary in sales, it is important to have a good balance between salary and commission. Many companies that offer salespeople salaries also offer them commission if they exceed their quote. How much are you willing to pay exceptional employees? You have to consider all the angles.
When you think about commission sales vs. salary sales from a business owner’s standpoint, it can be tempting to offer commission especially in the current economic recession. You can use it as an area in which you can save money. Although this is enticing, you still have to be considerate of your employees’ needs and wants. If the majority of your employees would prefer to have both a salary and commission, it is a good idea to agree on a common source. If your employees are old school salespeople, they probably only will work for commission. Ask your employees what they would prefer. This also lets them know that you actually care about their thoughts and feelings. There is no right answer for the commission sales vs. salary sales debate because every company is different. Its employees may prefer one greatly over the other. If this is the case, go with what the masses want. If you only are worried about what your company can afford, then you need to examine how much it would cost your company to use both methods and choose the one that is more economical.
One of the most important considerations in hiring and managing direct sales representatives is how they are going to be compensated. How much of their income will be fixed, salary in other words, and how much will be incentive based, commission in other words. To determine this, companies will need to consider factors about how the company wants them to behave and what their duties will be. Companies will also need to consider what competitors are doing. A good sales representative is a very valuable employee and employers don’t want to lose them to a competitor. The best approach to evaluate the ideal split between salary and commission is a matrix approach. The matrix is a logic based approach. Of course there are some judgments about what values to assign for each factor, but, overall, a very logical approach. It is also a great way to get the sales reps to buy-in to the overall compensation plan. There are three basic parts to the matrix. The first part is company related factors. These factors relate to how the company presents itself to the marketplace. An individual sales representative has little or no control over these factors. The second section is factors related to the particular job and the skills that will be required of the sales representative. Finally, in the last part, we tally up the points and see where the particular sales position falls in relation to the minimum or maximum number of points. You can view a demonstration on how to setup and use the matrix here.
Sales and marketing are some of your largest expenses. But sales are the lifeblood of the enterprise. It is very important to compensate sales representatives fairly and to encourage a high level of productivity. Excessive turnover in the sales force will lead to low productivity and high costs relative to output. The sales compensation structure, particularly the allocation between salary and commission, needs to be aligned with the reality of the complexity of the sales task. Representatives who handle complex transactions should earn a higher percentage of their compensation as salary. While sales representatives who handle less complex transactions with little follow up should get a low percentage of their compensation as salary. Companies should re-evaluate sales compensation plans frequently to adjust for changing circumstances.
A big challenge for many growing businesses is how to fairly compensate salespeople when cash flow is often not stable yet. The norm is to hire sales professionals strictly on a commission only basis, hoping that they will outperform your expectations and bring in new business. Others try offering a low salary with tiered commissions to reel in sales. On the one hand, a commission-based system is supported by the incentive of new sales and upsells to current customers. On the other hand, sales people may not be overly motivated by this approach, resulting in less than stellar performance.
Companies pay commissions to employees or contractors who facilitate or complete financial transactions to sell services or products. Commissions are predetermined fixed rates of compensation, such as a percentage of sales, based on the revenue generated. Some jobs are commission-only, while others pay a base salary plus commission. Although commission-based careers generally involve sales, there are vast differences in the job titles, industries, and levels of knowledge and skill required. Commission-based careers require a great deal of self-motivation to work independently at the tasks that generate income.
Stockbrokers work with individual clients to whom they provide investment advice and sell securities and commodities. In 2016, the median annual salary, excluding commissions, for brokers was $67,310, according to the Bureau of Labor Statistics, or BLS. Brokers spend a lot of time building their client base, often cold-calling from a list of potential clients and participating in networking opportunities. Stockbrokers customize investment advice based on the client’s finances, knowledge and needs. Investment firms often pay stockbrokers, also called securities and commodities brokers, a base salary, plus commissions and bonuses. Employers usually require a minimum of a bachelor’s degree for this position.
Once you check them out and they prove loan-worthy, you authorize the loan. Most loan officers — 86 percent, in fact — are paid on commission. According to Chase reports, Your commission depends on how many loans you generate and their dollar amounts. Banks, mortgage companies and credit unions employ loan officers to evaluate and approve loan applications. Bank loan officers are the keepers of the loans. When people need a credit loan, home loan, personal loan or business loan, they come to be evaluated for approval. Most loan officers receive a commission on the loans they approve, which motivates them to approve more loans, but many are paid only a flat salary, or a salary and commission. Commercial loan officers evaluate loan applications for businesses, while consumer loan officers and mortgage loan officers handle applications from individuals. Consumer loan officers generally need a high school diploma and on-the-job training. Commercial loan officers usually need a bachelor’s degree in business, finance or a similar field. Licensing is required for mortgage loan officers. The Bureau of Labor Statistics reports the average income of loan officers at $70,350, with the highest 10th percentile earning $119,710, as of 2012.
Real Estate Sales Agent
In 2016, most real estate sales agents were self-employed and earned the bulk of their median annual wage of $44,090 through commissions, according to the BLS. Real estate agents, who must work with a licensed real estate broker, help their clients buy, rent and sell property. Agents show property, but they also review contracts, manage buyer-seller negotiations, market properties through advertising and open houses, and advise clients about market conditions, housing prices and mortgage loans. Real estate agents undergo training and must obtain a license, for which high school graduation is required.
Literary agents, who represent writers on the literary market, perform a range of duties that include editorial assistance, researching and contacting publishers, and negotiating contracts. A literary agent usually receives a 15 percent commission on the sale of a book to a publisher, according to Poets & Writers magazine. Literary agents are usually self-employed and work under contract with the writers they represent. Literary agents track licensed works, monitor royalties, and serve as conduits between publishers and clients.
Insurance Sales Agent
Insurance agents sell life insurance, property insurance, health insurance, auto insurance or home insurance to consumers. According to the “Wall Street Journal,” commission for independent auto insurance agents’ averages 15 to 20 percent of the annual premium; life insurance agents often receive more than half of the first-year premium. In other words, an auto insurance agent may earn $200 and a life insurance agent $600 from one policy. Some insurance sales agents work for individual insurance companies, while most work for insurance brokerages that sell policies for several companies. Insurance sales agents find potential customers and work to determine the best policies to meet their needs. Agents who have high school diplomas meet the requirements of many employers, but some insurance sales agents have a bachelor’s degree.
Pharmaceutical sales representative
Pharmaceutical sales reps visit doctor’s offices, clinics, hospitals and other medical facilities with the goal of convincing doctors to prescribe their company’s medications. You are assigned a specific medication, or set of medications, and are considered an expert in those meds. When a doctor writes a prescription for one of the patient in that territory, that’s a win for the sales rep. They are paid a base salary, plus a bonus of between $28,000 and $45,000 if they sell enough of their assigned medications. Then If the rep is hard working, the bonus may be up to $110,000, according to Pharmaceutical Reps.com. As of 2012, the BLS reports the average annual salary for a pharmaceutical rep at $89,670.
Sales engineers sell complex scientific or technical products, such as the latest computer software or the latest solar panel technology. Their responsibilities are similar to other salespeople in that they must obtain clients and explain why their product is better than their competitor’s. They also generally earn a commission or bonus, which is often based on a percentage of sales. However, in addition to these duties, they also may participate in research and development, and make modifications to products as per the request of their clients. As of 2012, a sales engineer’s average annual income was $99,290, with the top 10th percentile earning $150,970, the BLS reports.
As a sales professional, you likely get paid commissions. But there are different types, and you’ll want to know which type of commission works best for you. The options you have will depend in large part on the industry you’re in and/or the type of product or service you sell. In addition, your success will also depend greatly on your own skill and experience.
Before accepting any sales position, it’s highly recommended that you understand the basics of your overall compensation plan. This is especially true if you’re moving from one sales position to another. It goes without saying that you should become very familiar with your compensation plan if you’ve already started a new position.
One of the benefits of understanding your compensation plan is that it will help you to identify where the company wants you to focus in the products you offer. For example, assuming all of the products you offer are of equal benefit to your client base, if your commission plan pays 5% when you sell a particular product or service versus 15% on everything else, this is a clue that your company does not want you to focus on selling the product or service that pays only 5%. This could be for a variety of reasons. Also, there is usually a bonus level that pays more when your sales reach a certain amount. This level tells you what level of production your company highly values from its salespeople.
Types of Compensation Plans
Most compensation plans fall into one of three categories: commission-only, straight salary, or a combination of the two with or without additional incentives.
This type of position pays only when you make a sale, which means that the amount of money you earn is completely dependent upon your ability to close new business with either new or existing clients. There is no pay arrangement for effort or time worked on a sale. In this type of arrangement, you will receive a percentage of the sale price or gross profit of your product or service once a sale is made. If you sell more than one thing, the percentage may not be the same for every item. America’s top salespeople love Commission-Only compensation arrangements because they usually have the most lucrative terms of payout and potential upside. It is the closest of the three types to being in business for yourself. It is often said that it is like being in business for yourself, but not by yourself. Therefore, only entrepreneurial and highly driven individuals need apply to these types of sales positions. In order to attract more salespeople to apply, several organizations employ minimum guarantees of income within their Commission-Only plan. Essentially, this gives the company the opportunity to pay on effort and time spent in selling their product even when there are little or no sales that have been closed. This form of compensation is the most attractive to the salesperson, but the company will be much more discerning about who they hire for this arrangement since their upfront investment is significantly larger than the other two plans.
This form of compensation was rarely used for many years, but it has been employed more in the past ten years. In this age of the savvy consumer, some companies go as far as advertising that their salespeople are not paid commissions at all. This has been used in many retail environments such as department stores, furniture stores, and auto dealerships. It is, by far, the least used method of compensation for salespeople. Many companies dislike this arrangement because it can make for unmotivated salespeople! Top producers do not like this arrangement because it severely limits their ability to earn a substantial income. This leaves the mediocre or subpar salespeople as the only interested applicants, which can make matters worse for increasing sales. It is an arrangement that offers little incentive to exceed the bare minimums.
Salary Plus Commission
This is probably the most popular and common compensation plan for salespeople. It allows for a bit of security, while also giving salespeople the incentive to continuously improve and make more sales. It is very easy to get comfortable with having a salary, but be careful that your salary is not so high that it restricts your ability to earn high levels of commission. When comparing one plan with another, the plan with the highest salary is not usually the best for top producers. This is because by default, many of these plans with high salaries overpay mediocre or low producers at the expense of the top producers.
Does your firm offer other types of incentives, such as bonuses, a leased car, an expense account, contests, or advances? These must also be taken into consideration when comparing compensation plans. It may be difficult to determine at the outset if a firm’s compensation plan will be the most advantageous to you, but make a special effort to understand it in order to plan your finances. Don’t leave it to chance. Understand the principle aspects of your compensation so that you can create a viable budget and avoid living beyond your means.
Commission Pay structure
If your initial offer isn’t big enough and you’re in sales, instead of negotiating more salary, you can negotiate a bigger salary package. Here are some of the more common combinations: straight commission, variable commission, draw against commission, advance against commission, base plus commission, salary plus commission, salary and bonus, salary, and residuals.
Straight Commission: Sometimes straight commission jobs are the bottom of the sales barrel – the company isn’t willing to invest anything in you. Sink or swim. Good luck. On the other hand, a straight commission puts your income in your control. On straight commission, your compensation is strictly a percentage of your sales. To many people that arrangement seems like the most risky, but it’s actually the purist compensation. If you sell well, you’re safe; no one will fire you. If you sell great, you’re not only secure, you can practically write your own ticket.
Bottom line, every job is “straight commission of a sort. If you don’t bring in more than they’re paying you – you’re fired. Draws and advances are not gifts; they come out of your sales. They simply represent payment ahead of time of a portion of your future earnings. If you don’t sell, you’re no more secure on salary than on commission. The best salespeople love straight commission because they know they get every dollar that’s coming to them and that their income is entirely in their control. However, straight commission is not practical if you can’t make sales right away. When the sales cycle is lengthy, straight commission is ordinarily not workable.
Negotiating tip: see if you can get the commission percentage increased, or tiered (increases at certain intervals of sales.)
Variable Commission: Same as straight commission, but the rate goes up or down depending on sales circumstances. You might be paid a higher commission on new accounts, on larger sales, or on total volume over a certain amount. Negotiating tip: an increase in commission rate for top performance can be very lucrative and motivating.
Draw against Commission: Also straight commission, except the employer lets you draw a certain amount of money each pay period to help you get started. So if you have a $3,000 draw and you make only $2,000 in commissions, you would get a check for $3,000 and pay the company $1,000 back out of future earnings. Most draws are “forgivable,” which means that if the job isn’t working out you could quit and not have to pay back any money you owed the company. Negotiating tip: do check this out, and negotiate it as “no payback” if you can. Draws may last indefinitely or for a specified number of weeks or months, and the draw itself may be reduced or increased over time.
Advance against Commission: Like a draw, but it is normally an occasional, rather than a continual, event. It usually will not exceed the amount of commissions already earned. Negotiating tip: try to get an advance if they’re not willing to give you a base and you need more money to cover your life expenses while on the job.
Base plus Commission: This is the same as salary plus commission. Here the company pays you a certain salary, called your base. That’s yours to keep and rely on. Above that, the company gives you a commission according to a mutually agreed-upon formula. Most sales are this combination. The longer the sales cycle, the higher the base needs to be. Here is a negotiating tip: Get your base salary first, and then negotiate your commission rates and tiers.
Salary: Some sales jobs pay a straight salary; no commission. These jobs almost always come with bonuses. If not, you can try to negotiate one. Some companies like to advertise, “no pressure – our sales people are not on commission, they are there to help you.” As referenced above, all sales jobs – all jobs for that matter – are ultimately straight commission. So a salary may take the pressure off any individual sale, but rest assured you have to earn your keep. Negotiating tip: follow the normal salary negotiating rules.
Salary and Bonus: A bonus is a one-time payment of a fixed amount of money for achieving a certain volume of sales. It could be a weekly, monthly, quarterly, or even annual bonus or a bonus that automatically kicks in when you reach your goal. Negotiating tip: bonuses usually have to be uniform across the sales force, but you can still try to negotiate it higher – there’s nothing to lose in asking.
Residual Commission: This is a type of commission that keeps on paying even if you quit the company. In insurance sales, for instance, after you’ve been with the company for a certain length of time, you’re entitled, for a period of time, to a commission on the payments clients make to the policies you sold them whether or not you work for the company any longer.
When your sales work involves a lot of new-account generation, you would be wise to negotiate a residual commission on those new accounts. The justification here is that the reward for selling the account belongs to you; after you leave and the account is maintained, a portion of the income should still be yours for a while. Negotiating tip: negotiate both the commission rate and the duration.
Watch out! Don’t get cheated out of your commissions when you leave. One of the most common, but avoidable, misfortunes in negotiating sales commissions is not being clear about what happens when you leave the company. Whatever your commission structure is, make sure to get it in writing. Whatever your commission structure is, make sure you get clear exactly how commissions and pay are handled when you leave the company.
What sales do you get paid on, and when is the payment due? Often, commissions are payable when the client pays, not when the client is billed. Those payments may lag several months after the sale is made. Get it in writing now, when you begin. You don’t want to fight this battle when you’re gone; you would lose. So, when the salary isn’t good enough, negotiate a draw, a bump in commission, a performance bonus or residuals. There are lots of ways to sweeten an offer.
Commission structures are perhaps the best way to motivate employees to sell; they are direct rewards for salespeople. But with so many varied commission structures out there, the big question for retailers remains: What percentage of pay should be commission-based and what percentage should be salary-based? All too often, commission structures in cellular retail aren’t well conceived. Some retailers use fixed-rate commissions whereby a salesperson receives, for example, $10 each time he/she sells a particular handset. This doesn’t work.
In order to get the results, you want commission structures must be calculated as percentages. Retail executives need to decide upon a balance between how much to pay salespeople (per commission) and what they deem suitable compensation for their sales efforts (on top of their salary). “To create a compensation package that’s fair to both parties, consider what it is you are actually paying for,” advises Keith Rosen, executive sales coach for Profit Builders. “Focus on paying for the results… For example, what are you willing to pay for a 50 per cent increase in sales (or more)?”
Calculating the right commission structure isn’t easy – it can be complicated. But it’s important to consider the factors at play in your retail business. Rosen says calculating a salary-commission combination depends on a number of factors, such as your sales cycle, average sale (dollar amount), industry (in this case, cellular retail), local and state laws, cash flow, profit margins, how your company is set up (S-Corporation, C-Corporation, L.L.C, sole proprietorship), customer payment terms, the number of salespeople you need and whether or not there is some type of residual income that the salesperson makes on each sale. There are different tax treatments for commissions, versus other income types. If you are running your own payroll, make sure you are aware of the commission tax guidelines for your country, state, or city. If you run your payroll through a provider, you should make sure they are able to calculate taxes on commission pay.
commission is a fee paid to an employee for transacting a piece of business or performing a service. Within a commission structure, a company compensates its employees based on the revenue they generate for the business.
Depending on the compensation scheme, a salesperson may be paid sales commission based on a percentage of the amount of the sale, such as 3% of the total sales price, a standard commission on any sale such as $500 per sale over x sales in a week or month, or a team-based percentage of the total sales of the department for a specific period of time.
In the percentage of sales commission plan, the sales commission can increase or decrease as the volume of sales increases. This is important because you want to encourage the employees to increase sales. You don’t want salespeople to become comfortable producing sales at a particular level when your goal is to grow your company.
Depending on your company’s culture, and your expectations from employees, employers may elect to pay a standard bonus to all employees of the company when sales exceed a certain dollar amount. Employers can also pay a bonus based on a percentage of the sales increase.
This cultural model emphasizes that, while the salesperson may have made the actual sale, customer service, training, and tech support taught the customer how to use the product. Marketing brought the customer to the door. Engineering designed and made the product, and so forth. Employers may also choose to reward employees with quarterly profit-sharing in which a percentage of sales are distributed to employees to reward and recognize their efforts. In a profit-sharing system, the employer is communicating that profitability is every employee’s responsibility. Whether the employee makes direct sales, controls costs, or spends prudently, each employee is rewarded for contributing to the profits. Commission structures are most common in sales heavy industries, such as retail, real estate, insurance and the stock market. There’s also a prominent spot for commission structures within sales teams of direct sale products or services. Direct sale products or services are sold directly to a customer, without having a retail storefront.
Not everyone has what it takes to be a successful salesperson. If you’re thinking about jumping into a commission-based career, keep in mind that there’s a specific formula of skills and personality that the job requires. Successfully working in a commission position takes a unique set of abilities. If you are driven to succeed, continually push to achieve more, enjoy helping people, and have a thirst for knowledge and excellent communication skills, you have a good foundation to build the sales skills necessary for success as a commission employee.
You need to be willing to put in whatever time it takes to learn about your product, and your customers, to deliver the level of service required to excel in commission sales. The financial rewards can be great, but the most successful people working on commission are those who truly love their product or service, and are committed to sharing it with everyone they meet. You may earn a base salary as a salesperson, but you’ll most likely rely on the additional compensation that comes from making sales. If you don’t have what it takes to close those deals, you may be leaving money on the table.
“If someone were to ask me, ‘Is a commission-based job right for me?’ I would first ask them why they’re interested in a sales position, then I would ask them if they’re hungry for knowledge, if they want to control their own salary, and if they have an insatiable desire to succeed,” says Art Sobczak, President of BusinessByPhone.com. “If they say yes to all of those, then they may be a good fit for a commission-based job.” In order to be a successful salesperson, one must be motivated and self-disciplined, confident and positive, a great interviewer and performer, and have an immense desire to learn. “And they should be someone who is never satisfied,” he says. “The best salespeople say ‘I can do more. I can do better,’ and they make that extra call, they ask that extra question, and they reach for the stars.”
“It takes a lot of self-discipline,” says Wendy Weiss, an author and sales coach, also known as The Queen of Cold Calling. “When you’re a sales person you don’t have the boss looking over your shoulder telling you what to do every minute. You have to be very self-motivated.”
The salespeople who earn the highest commission generally practice self-improvement regimens. The superstars are hard workers and realize it’s not a ‘get rich quick’ profession. They are the ones who are constantly trying to do better by learning, researching and getting to know their product and customers. Salespeople never graduate from the school of sales because there is always more to be learned. If you’re not willing to learn and not hungry for knowledge, you are less likely to succeed in this profession. Phenomenal communication skills are also essential for commission-based jobs. Contrary to popular belief, successful salespeople listen more than they speak. “A great salesperson asks questions and spends most of the time listening to the customer and understanding who they are and what they want.
If you’re in a sales job, you should be listening 80% of the time and talking 20% of the time, he says. If you’re really talkative, a sales job may not be right for you. Some communications skills can be learned, but you have to be a naturally inquisitive person to succeed as a salesperson, says bestselling author and lecturer on sales. Most people have natural conversational skills, but you have to ask the right questions and plan what you’re going to say to your customers in meetings and on cold calls. Poor planners and lousy interviewers might not be a good fit for a commission-based job. A confident, positive attitude is another fundamental personality trait that is essential. “This is a job that relies on how you feel. You can’t have a bad attitude when you don’t make the sale. You have to turn it into a positive experience. You have to be able to take emotion out of the job altogether. You’re better off if you have a neutral attitude and don’t let your emotions get to you. Passion, which goes hand-in-hand with attitude, is another must-have. Having a true passion about, and belief in, what you sell is essential for success in sales,” . “It’s the difference between trying to push a product and seeming like a desperate salesperson, or truly helping someone and letting them make a buying decision that they feel they are in control of.
If you’ve got all the qualities and skills that it takes to be a successful salesperson, don’t think all the work is done. There is a myth of the ‘born sales person while some people are born with talent, talent alone is not enough. Top performing sales professionals are not winging it. They may start with talent and then they learn the skills that they need, develop a plan and process and they execute on that plan and process.
The ability to execute is a key factor in success. There’s a lot of talk these days about the ‘Law of Attraction.’ To be successful in sales it’s more about the ‘Law of Action.’ Top performing sales professionals take action consistently to grow their sales.
Before you starting turning in job applications for a commission-based positions – there are a few other things you should know. If you want to go into a commission-based sales job, you need to have some money in the bank because it takes time to start earning commission, so you should have some money to fall back on. If you don’t, this might not be the job for you. It’s also important to know that your role is to help customers learn how your product can benefit them. Remember, it’s not all about you. It’s about them. If you’re willing to help others and address their needs, you can be successful. Sales experts agree that this isn’t the right job for workers who want a traditional 9 to 5 schedule. If you want to come in at 9 and check out at 5, you won’t do well. You need to challenge yourself to work overtime to ensure that you’re constantly getting good, qualified prospects in your pipeline.
The 80/20 rule definitely applies to commission-based sales jobs. The top 20% of producers make 80% of the commissions. If you want to be among the top 20% earning high commissions, then you need to be willing to do what it takes to succeed.
Non-cash rewards don’t engender increased quality, productivity or creativity, either, says Alfie Kohn, one of America’s leading thinkers and writers on the subject of money as motivator, and author of Punished by Rewards. He believes rewards programs can’t work because they’re based on an inadequate understanding of human motivation. One of the most thoroughly replicated findings in social psychology, he points out, is that the more you reward people for doing something, the more they tend to lose interest in whatever they did to get the reward. And when interest declines, so does quality. If commission pay is not properly manage it can leads to;
Ah, the sweet sound of a new sale. There’s nothing like it, especially when you have a commission-only job. The only problem is that if you’re not selling, you’re not making any money. For someone looking for a steady income week to week, month to month, year to year, a commission-only job might not be a good fit. Since your sales can soar (or sink) depending on your overall success and the state of the market, you might become stressed out over being able to consistently earn an income to live on.
Let’s say that you want to refinance your home, or co-sign on your kid’s college loans. By banking standards, you might be seen as a higher risk if you have a commission-only job than someone who has a steady income. In turn, you might wind up paying higher premiums and interest rates than a person who is salaried. If this is a concern for you, you might want to consider having a part-time or full-time job, and then using a commission-only job for supplemental income instead.
The world of commission-only jobs is pretty black and white. You’re either hitting your numbers—or you’re not. So if you are having problems closing sales or keeping up, it will be immediately evident to both you and your employer. This means that you could potentially lose your job faster than if you had a job that wasn’t commission-only.
Any type of sales employment takes time to get established. This is even true for salespeople who are inheriting a strong inside sales position. Prospects will only buy things from people that they trust and establishing trust takes time. For this reason, many people can’t afford to take a job on straight commission, even with the unlimited earning cap, because they need money for basic essentials right away.
Salespeople need to make phone calls, take prospects out to lunch, send out letters, print contracts, and maybe even have access to a CRM to be fully productive. These are all costs that happen whether a sale happens or doesn’t happen. It is very possible for an agency to lose money before it is able to make money. If no sales happen, then a bankruptcy is likely at some point in the future.
One of the biggest upfront expenses that occur with a straight commission structure is employee training. A specific skill set that includes approaching people and closing a sale is necessary for both the agency and the employee to find success. It is not uncommon for salespeople to go through two weeks or more of paid training. If an employee decides to leave right away, that’s a cost that hurts the bottom line of the agency.
There are numerous ways to get paid today for hard work. Some people earn an hourly wage. A salaried position is very common. Others work on a contracted rate. For salespeople, however, working on straight commission is one of the most common ways to earn a paycheck. If you want to earn what you believe you’re really worth, then a straight commission arrangement could be your best solution.
Working for commission pay has many advantages for highly motivated and talented salespeople. However, remember that developing a clientele takes time. When you begin a new position, you will likely need a few months to really start earning your true potential. Make sure you have enough savings to be comfortable while making new contacts.
Even though many positions pay a base salary, the value of working for commission is that you are in control of what you earn. Highly motivated salespeople will earn generous commissions, while their less ambitious counterparts will not. Other benefit includes;
Your paycheck is based on a specific percentage of the sales that you are able to generate. This means you can always keep earning more money if you’re willing to put in some extra hours of work. Straight commission employees are never capped.
2.Independent contractors are less overhead.
Hiring a person on commission or close to it, and keeping them as a contractor or 1099, can save you on overhead like payroll taxes, benefits, and more (think office space, fringe benefits). Also, if the person doesn’t work out- poof! You can easily terminate their employment.
Because the commissions are published up front, salespeople know what they can earn from any potential sale. This often encourages salespeople to include natural upsells which helps their paycheck and the company’s bottom line at the same time. A bigger contract equals a better paycheck.
Salespeople are out in the community every day speaking with prospects. This is the perfect opportunity to brand employees through uniforms, vehicles, or both to increase recognition within a community. When salespeople are associated with good deeds and your brand gets exposure, a positive experience can be obtained even if a sale isn’t made so that more prospects are created.
If you don’t work, then you don’t get paid under this type of paycheck structure. Because people need to convert sales in order to receive a paycheck, there is a natural structure in place that encourages hard work. Some salespeople might work harder than others, but eventually the chaff gets separated from the wheat and an agency is left with the best workers who want to be there and earn a living.
If you have a small business that needs a successful salesperson, or maybe you simply can’t run the business and make the sales anymore, you might be tempted to hire a commission-based person for your business. This can be a great solution to help free you up for running the business more than just selling, as well as give you the ability to expand your market and increase your revenues.
Before you hire a commission-based person, ask yourself the following 3 questions:
This is an important question in terms of how you will structure compensation. If you want someone who is commission only, you will probably have to provide them the leads to call upon or meet with. Otherwise, they are prospecting for free, which will not motivate them. You will need to pay a salary or perhaps have a training period with pay in order to get them up and going if they are supposed to also prospect.
This is an important distinction to make, especially if you are going to offer a salary plus commission or an hourly rate plus commission. The reason is that there are rules on exempt vs non-exempt employees in the inside and outside sales space, and you may be then looking at needing to pay overtime to someone if they work more than 40 hours in a week. Employees who work from home in outside sales as a commission-based role is generally an exempt position, and they are also generally independent contractors.
Maybe you think you are going to hire a commission only person who can work from home. But then you need to train them on your products. Do you have training materials? Do you have a 30, 60, 90 day ramp up program to show them that will lead them to success? If the answer is no, you may want to reconsider a commission only remote position or you could be setting yourself up for failure.
How to hire Commission based Role?
Step 1: Write your job description
You need a solid job description in order to get the right people to apply to your position, or so that you can send it to potential candidates. We talk you through how to do that in this article.
Step 2: Create your compensation plan
Based off your new job description, you now need to come up with your compensation plan. Remember, you can do commission only, a draw on commission or a salary plus commission. What makes sense from the 3 questions you answered above?
Doing some research on the commission-based jobs out there would also be useful to give you perspectives on commission plans. Look also at your profit margins and bottom line needs- what kind of commissions can you give without breaking your profits?
Most commissions for enterprise level accounts are only 1-3%, but those deals run into the millions of dollars. Smaller deals call for a larger commission; you might even choose to do a plan where the percentage changes by the dollar amount of the sale.
For example, a retail store might use the following commissions:
$5 for sales $25-$50
$10 for sales $51-$100
$25 for sales $101-$250
$50 for sales $251-$500
$100 for sales $501+
You could also play with percentages instead like:
5% for sales $25-$50
10% for sales $51-$100
15% for sales $101-$250
20% for sales $251-$500
25% for sales $501+
Step 3: Post your job
Now that you have a job description and potential commission plan, you can post your job. There is no need to post your commission plan as a whole, but you might want to list the potential earnings, the base salary if there is one.
Some places that post commission-based jobs are:
Freelancer websites like Upwork. Indeed.com (your position should have an hourly rate or salary as well) Many niche job boards circled around commission-based jobs (although beware of scams)
Many job boards, like FlexJobs and Craigslist, no longer allow commission ONLY jobs because of these scams. This is why we highly recommend having a base hourly or salary in addition to the commission or a draw on commission plan.
Step 4: Phone screen candidates
Once you start to review resumes, you will want to take the top ones and hold a 5-30 minute phone screen with them depending on what you want to get out of the call to how much time you have. Our phone screen guide has 5 minute and 30-minute phone screen templates, as well as 51 questions you can ask.
Step 5: Have a structured interview with candidates
For a sales role, you need to get around the salesperson. Most sales people are going to be GREAT interviewers (beware if they are not- they are probably not good at sales then!) You need to get around personality and evaluate people apples-to-apples and the best way to do that is a structured interview. We provide a structured interview template here, as well as a ton of ideas for questions and how to rank candidates. We also provide an employment verification letter if you’d like to verify their sales work history.
Step 6: Hire a candidate for a short contract or training period
A commission-based role is a great position that could be a contract-to-hire situation versus just jumping right into full time employment. You need to see that a salesperson can perform, especially if they boast a good track record (and good reference checks). One of my clients starts people only at 10-15 hours per week during the training period to make sure that it’s a good long term match- they’ve found this saves everyone time and stress, as well as it lets them part ways with people on good terms since not a ton of time was invested.
Step 7: Help the candidate to succeed (train them)
If you own a business, you know what it takes to sell your product or service. You’ve been doing it for a long time, whether consciously or unconsciously. Help your new hire to success by having a mentoring and training relationship with them. Should the new hire shadow you? Listen in on phone calls? Should they first learn the products and go through the funnel as if they were a customer?
There are a lot of ways to train a sales person and only you can tell what would work best for your business. Prepare a training schedule and plan for as soon as this person is brought on board in order to help them succeed- and to get you sales!
Homepreneurs currently contributing £300bn to the UK economy. Impressive numbers when you stop and think about it. Not only do homepreneurs spend £40bn in the local economies but they also earn more per hour than those with “proper” jobs. 1 in 7 of the UK’s working population is Self-employed the highest percentage registered at any point in the past 40 years. The most popular sectors for home businesses are: Business services, Creative, Retail, Professional Consulting. The sky is the limit for commission based job which is unpredictable due to digging deep with the help of internet.
The motivation behind start from home are:
The Surprising facts about becoming a Homepreneur is that:
Partnering with a commission based company with the right product to sell online have help people that cannot do some job due the stress involve and their age. Been an online homepreneur required:
The bad news is that most people who think about starting an online business and creating a life of freedom and flexibility don’t ever even get started.
The good news however, is that thanks to the Internet it is easier than ever to get up and running as a Homepreneur. Everything you need is out there, sometimes you just need a bit of help finding it.