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Should You Have A 100% Commission Sales Team? The Truth
INSIGHTS
WHAT YOU WANT IS EVERY BUSINESS OWNER’S DREAM. A TEAM OF TOP SALES PERFORMERS INCENTIVIZED TO SELL THAT COMMISSION-ONLY JOB.
You’re probably looking at it from a: “prove you earned this role” perspective, but I’m going to be honest with you, and the truth may hurt.
Most business owners use 100% sales commission structures to shirk their responsibilities.
So, should you have a 100% commission sales team? Avoid a 100% sales commission structure if you’re running a business to be worth something someday. Instead of hiring sales agents, sales leaders need to develop the front end more in this commission structure. It’s counterintuitive as essentially you exchange salary for support & infrastructure; you’re gambling with company money.
Silicon Valley has destroyed sales. I can’t wait until their funding dries up and everyone realizes how stupid most of them are and have no clue about sales.
I could get on my soapbox right now, but I won’t. Instead, let me tell you what all serious business owners need to know now.
You need in-house sales representatives on payroll, not contractors, if you plan to take advantage and progress your business to one day be something else.
I have worked off commission with no base salary and ran a remote sales organization of 50 sales reps. And I can tell you that sales job type is long gone.
I will explain why you shouldn’t hire that sales rep with a 100% commission structure in today’s market and provide examples of other ways you should structure to attract the right job seekers.
WHAT IS A 100% COMMISSION STRUCTURE?
In a commission-only structure, the sales rep receives earnings directly from their sales. Most companies do not place a commission cap on commission sales – so it fosters the allusion for new hires they can earn a higher income. They have the highest earning potential.
That is not always the case.
Since the company doesn’t have to pay a base pay, they can offer a higher commission on each sale.
Ultimately, the sales rep “controls their income”; thereby, working more hours or closing more deals makes more money. Sales commission plans can also help sales leaders gauge how well a salesperson is doing in that sales role.
Straight commission plans are desirable for startups and early-stage companies because the only sales commission offers the fastest market route.
A 100% commission model is more appropriate for businesses with a short sales cycle.
So, if you’re trying to sell products, like an info products business, work a 4-hour workweek, or obtain a passive income hustle, go out and hire yourself people on a straight commission plan.
Commission-only rep is considered an independent contractor, so you’re not technically looking to hire an in-house, new employee.
Another perceived benefit is that businesses can save money on hiring, taxes, benefits, training new sales reps, and other expenses. The company is only obligated to pay salespeople these benefits when they bring in revenue.
Again, that is not always the case and let me tell you why.
Managing 100% commission-only reps is a beast because the people who will be successful in that sales role are lunatics. You may find a great salesperson, but most salespeople will be a drain on your resources.
DISADVANTAGES OF 100% SALES COMMISSION PLANS
If you haven’t figured it out already. I do not advocate for 100% commission sales reps if you are seriously trying to grow your company.
It is such an outdated model. When the benefits of the sales compensation structure are its most significant disadvantage, it’s not a great model.
I won’t touch anyone prepared to take a 100% commission role that doesn’t have a seven-figure On-Target Earnings (OTE) in today’s job market.
So, let me take you through some cons of the 100% commission structure:
High turnover rate
Approximately 99% of commission-only sales reps fail to make a livable wage. This forces them to leave for greener pastures.
The type of person is not mostly top talent; they are often risk-takers with a strong entrepreneurial bent.
They will either decide to act on that entrepreneurial instinct and leave you. Or, they cut corners at your new customers’ expense, forcing your hand to show them the door.
But be sure that firing them will not help you recoup potential losses – and losses can be devastating.
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Increase support & infrastructure costs
I always tell people that when you build out a team of 100% commission reps, the sales leader will need to dig deep for the extra effort on the front end.
In other terms, they need to develop the sales process, cultivate the leads, interface directly with customers vs. hiring employees.
It seems counterintuitive as you are essentially exchanging salary for support and infrastructure.
Managing 100% commission-only reps is a beast because the people who will be successful in that sales role are lunatics. You may find a great salesperson, but most salespeople will be a drain on your resources.
Limited accountability
It’s unreasonable to believe that a contractor will have the same level of commitment as a salaried employee. It is an outright lie when people say:
“100% sales compensation plan ensures your salespeople are committed to selling for your organization.”
That is bullish*t.
If contractors don’t sell, where is the accountability? 100% commission contractors are paid for what they sell.
You pay them after they sell something; you’re not paying them to sell something. So, their commitment to the agreed sales process, sales cycle, and sales activities simply does not exist.
They don’t owe you anything in their eyes because there is no equal exchange. Unfortunately, that fostered mentality serves as a short-term gain in reducing risk but sacrifices long-term revenue growth.
Managing company’s growth
I have hinted at this already; it’s nearly impossible to find A-Players willing to accept this type of position.
Let me be clear: any decent salesperson out there is already making six figures as a base minimum wage. It’s sad but true.
It is a very soft world we live in. Not long ago, I read that, on average, sales reps make 2/3 of their annual earnings from salary without the average sales commission rates.
These weren’t bottom feeders either; these were people making $80k-$120K. It is insane.
Fosters wrong sales activities
A remote 100% sales commission team can often be at odds with target client outcomes.
Salespeople will generally pursue activities that will put more coins in their pockets. The 100% commission structure amplifies the pursuit of these activities and breeds competition.
I am all for that, but not at the expense of missing other targets, business goals, or client outcomes – no exception.
Never underestimate salespeople’s willingness to cut corners if it makes them more money.
WHY YOU NEED A BASE SALARY
Essentially, a base salary signifies your commitment to that salesperson:
- employment commitment
- financial security
- stability
- investment in their future
- vested interest in their well-being.
As you are also denoting your commitment to them, in return, you can ask them to commit to certain company behaviors and selling activities leading to success.
You are creating a culture of accountability with every job opportunity in the company.
If you take away anything from this article, it is this:
You will search through many salespeople, whether junior or senior, to find a first-class professional that wants to work. However, it is reasonable to expect that you will pay this person a base salary for the job.
It is reasonable to expect that you will pay this person a base salary for the job.
HOW TO PAY YOUR SALESPEOPLE
A few tips on paying your salespeople
- Stating a 100% compensation structure on a job advert says: “100% commission role and I may give you salary if you prove it”
- It breeds competition, and I love it, but it will not attract the best in today’s economy.
- Reframe it to: “X salary with Y commission + Bonuses and other Remuneration; must be earned over a 60-day trial period.”
- The critical thing is your X Salary, and Y Commission needs to be amazing.
- Choose a sales commission plan, such as a tiered structure that allows for incentivizing behaviors you want and de-incentivizing behaviors you don’t want.
- Consider building a safety net with a reserve account and against reps that continue to sell bad deals.
For more specific information on how to pay your salespeople, read:
DO YOU NEED HELP PAYING YOUR SALES REPS?
There are a million different ways to pay salespeople; however, if you follow our basic structure, you’ll find that you’ll motivate the behaviors that will help grow your company.
Remember, salespeople, are paid to sell. You don’t want order takers, so weed them out and only grow the team members committed to the organization’s goals.
Get in touch with us at Rose Garden for more information on commission incentivization.
Rose Garden Sales Accelerator Proccess
We evaluate your compensation structure, tech stack, sales playbooks, sales strategy, sales process, hiring and onboarding to ignite revenue growth.
About the author:
Ali Mirza is the Founder & CEO of Rose Garden, a national sales consulting organization, and featured in Forbes, Inc, Business Insider, The Huffington Post, Business Rockstars, and The Wall Street Journal.
Ali is a highly sought-after public speaker presenting at multiple national conferences on innovative ways to accomplish transformational growth on your sales team.
Rose Garden provides unparalleled support and guidance to growth-minded founders via sales strategy differentiation, world-class sales culture creation, and exclusive playbooks, processes, and scripts to position them for limitless growth.
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