What’s a straight commission pay plan for? To motivate sales representatives? Keep compensation in proportion with the company’s bottom line? Or perhaps enable owners to scale back their commitment to a rep when sales plummet?
Recently, ProSales invited the more than 3,000 members of its LinkedIn group to weigh in on the question of 100% commissions. We received dozens of comments but no agreement. Here’s a run-down of the major points that came up during the discussion.
Concern: 100% commission makes sales reps dollar-driven and less attentive to customer relationships
The trick here, many respondents noted, is managing employees whose long-term focus would likely be based on quick sales rather than long-term relationships. “Too many factors influence what someone buys,” said Daryl Lucien, director of sales and marketing at B&B Distributors in Elyria, Ohio. “Your pay plan isn’t one of them.” He contended that the best sales representatives bring in accounts by forging relationships rather than lunging for the cash.
Establishing these relationships is often the work of a combination of phone calls, e-mails and in-person visits, others agreed. “The industry standard is 10 touches for a positive result,” said Indianapolis-based sales rep. Thomas Petty. And that’s not sustainable on straight commission, he said: “You’ll go broke working.”
Mike Momb, technical director at Hansen Pole Buildings in Browns Valley, Minn., disagreed. His sales team’s focus is solely selling—no public relations, no collections, and no post-sale service—and they can work from home. “We are blessed with too many leads, not enough quality sales people,” he said. “Most sales people prefer to go for the low-hanging fruit. They just throw out lots of bait on the surface of the lake, but do not use a rod, reel, line or hook, and expect the fish to jump into their boat.”
But what if certain sales aren’t worth making?
Richard Kahn, sales manager at Feldman Wood Products in Garden City Park, N.J., argued that a straight commission structure works only if the sales rep’s cut comes from the profits. “The bottom line is what truly matters to the business owner or the sales manager who is responsible for the overall profits and losses of the company,” he said. He said he has refused sales because it won’t meet the company’s minimum margin requirement.
Many respondents indicated that a base salary plus performance-based commissions allowed sales reps to focus on maintaining profitable, long-term relationships while still promoting new connections. “I tell my guys all the time, ‘you sell yourself first, your company second and your product third,’” said Mike Catalina, the general manager at Huttig Building Products’ Newington, Conn., branch.
Payment plans are situation-, location-, and relationship-based
While some respondents saw straight commission as an opportunity for sales reps to reap the full benefits of their labor, others argued that straight commission might not be livable in some markets—or even a fair trade for employees who are asked to do operational tasks.
Michael Hall, a self-employed residential designer near Orlando, Fla., said the concept rests on a balance of expectations. “If the company offers 100% commission, they expect/want the aggressive 100% salesperson. It is that simple,” Hall said. “If they want 1/3 public relations, 1/3 sales, and 1/3 collections, then base plus commission might be in order.”
For some operations, these kinds of extra tasks are becoming the norm. Brad Wanzenberg, vice president at Deerfield Builders Supply Co. near Fort Lauderdale, Fla., said his company often requires the sales team to assist with contract management, collections, quoting and purchasing. “There is no feasible or ethical way an organization could ask a commission-only salesperson to execute these tasks,” he said. “As invaluable as they are, they detract from the time required to prospect, price, and close.”
Yet other respondents explained that 100% commission represents a measure of faith taken in the sales representative, some going further to say that straight commission often equates to independent contracting, regardless of one’s official title.
Ultimately, it depends on who is doing the analysis, said Doug Gilbert, property manager at 1st Choice Property Management near Fort Meyers, Fla. “As an owner, I looked at sales people as a necessary evil,” he commented. “As a manager, you have to identify the producers and weed out the low performers, and as a salesman, I had to constantly remind operations that the customer is boss.”