Straight Commissions = Low Cost of Sales + Motivated Reps?

Here’s a false argument:  Hiring straight commission sales reps can reduce your cost of sales and motivate reps.

I’ve often heard business leaders say, “Let’s hire reps at 100% commission.  If they don’t work out, we’ll replace them and they haven’t cost us a penny.”  Even at 100% commission, bringing new sales reps into a company involves expensive “hidden” costs:

• Training – New sales reps need training on your company’s culture, products, processes and procedures.  They need to learn your contract terms and pricing. They may need training on your preferred sales approach.
• Benefits – Unless you are hiring an independent contractor, you may need to include your new sales reps in the company benefits plans.
• Time – New sales representatives demand more time from your managers and executives while they learn your company and its systems.
• Equipment – New sales reps need to be equipped with appropriate sales tools such as phones and computers.
• Territory expenses – As new sales reps work their territories and visit headquarters, they may incur significant travel and entertainment expenses.
• Customer satisfaction – New sales reps are visiting your customers and prospects. You want to make sure you have the right rep in place, delivering the right message, the right way.  The cost of customer dissatisfaction can be enormous and ripple through to other customers and prospects.

Straight commission can provide tremendous motivation for sales reps who generate sufficient cash flow to meet their basic personal needs.  However, sales reps who have not yet established their territories and are struggling to make ends meet can quickly become disillusioned.  If your sales cycle is longer than a month or two, dissatisfied reps may leave for new job opportunities.  Then your investment in that “no cost” sales representative is lost.  Customer satisfaction may also decrease as customers perceive higher turnover within your sales team.  Finally, the sales rep you spent time and money training may take your investment and go work for your competitor.

Recommendation

Base salaries compensate your sales reps for spending time on non-sales activities that benefit your company. A base salary also helps sales reps meet basic living expenses so they can focus on your customers’ needs rather than their own. If you are determined to put your sales reps on a highly leveraged commission plan, consider paying your reps a draw against commissions during a reasonable period while they establish and ramp up sales in their territory.

Wallace Management Group Can Help

At Wallace Management Group, we’ll help you design and implement sales commissions plans based on your company’s goals and strategic plan. We’ve written sales compensation plans for small, medium and large companies in industries ranging from technology to manufacturing, industrial services, distribution and logistics. Learn more at wallacemanagment.com.

We’d like to help you achieve your sales and marketing goals. Contact us at (203) 856-9400 or info@wallacemanagement.com to discuss how we can help you drive more business.