by Paul Johnson
436 Words. Abstract: Straight (100%) commission plans do a great job of shifting performance risk to the salespeople. While the company may think it is eliminating risk, it may actually be taking on a bigger risk that could threaten the life of the company itself.
The temptation to use straight (100%) commission plans never goes away: "Let’s put our salespeople on 100 percent commission. Then, if they don’t perform, we’re not out any money." For small, start-up organizations, the lure is irresistible, especially when money is tight and the company or the products they sell have no track record in the market.
Who Pays For Freedom?
Straight commission appeals to salespeople because of the freedom that comes with it. Because they receive no salary, these salespeople are unwilling to allow management to prescribe how they do their work. That includes hours kept, effort made, methods used, or product lines sold. The only real rules they must abide by are ethical. When salespeople are willing to give up salary, management must be willing to give up control.
Who Pays for Failure?
For someone new to sales, finding a straight commission position may be a way to establish themselves as a salesperson. For a proven, effective salesperson, 100 percent commission may be the road to making loads of money by making lots of sales for their company. Unfortunately, most small companies with straight commission plans hope for the latter and wind up with the former. These inexperienced, undisciplined, babes-in-the-woods carry a high likelihood of failure, costing their companies untold sales opportunities during the "experiment".
If you choose to use a 100 percent commission plan, you must find salespeople who bring their own motivation to work every day. Each morning, the salesperson must have their own target to shoot for and a solid plan to get there. New sales people may have the enthusiasm, but it’s unlikely that they have a plan that works. Conversely, many experienced salespeople know how to create a plan and go through the motions, but are no long turned on by the thrill of the hunt. They may be content with a level of sales performance that allows them to satisfy their lifestyle requirements, but underperforms the sales goals set by management.
Either Way, You’re Gonna Pay
The net is there’s no way a company cannot invest resources in their sales team. Either you pay a salary and then plan on actively managing and developing your salespeople for success. Or, you pay straight commission, save the salary, then pay big dollars to replace unproductive personnel while you forfeit sales opportunities lost by ineffective sales people.
When you shift risk to salespeople by adopting a straight commission plan, you may in reality be risking your business. Think hard about what’s really important to you when you design your sales compensation plan, and control your urge to use 100 percent commission.
Copyright 2006 Paul Johnson. All rights reserved.
About The Author:
Paul Johnson of Shortcuts to Results educates, consults, and speaks on ways to achieve business breakthroughs using the Trouble Breaker™ Methodology. Check out more shortcuts at http://ShortcutsToResults.com. Call Paul direct in Atlanta, Georgia, USA at (770) 271-7719.
what are some solutions? how can a company with little to no reserves for recruitment and training possibly establish a salary comp plan?
Ouch! It sounds like your company is grossly undercapitalized. You have no money for recruitment, training, or salaries… wow.
Still, you must be really excited about your business, or you wouldn’t be pursuing it. Can I at least assume you’ve had sales success at this company on your own? If you can show a prospective salesperson that there is a PROVEN RELIABLE METHOD for making sales, you might be able to attract one. You must satisfy their math needs; for EVERY 8 hours of their time, they will make AT LEAST X dollars in gross profit. If you can’t prove that, you’ll be lonely for a long time.