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When to Hire Commission-Only Sales Representatives
Commission-only teams do not work when a business owner recruits the team to avoid paying out salaries or managing a sales organization.
In today’s day and age, I don’t advise my clients to hire commission-only salespeople in the most traditional sense. But there are circumstances where commission-only sales professionals thrive, and the sales organization and the company succeed.
So, when should you hire commission-only sales reps? There are only a few circumstances when you should recruit commission-only sales reps, including when the barrier of entry into that industry is especially high, and it’s relatively heavily regulated.
Even though I don’t recommend recruiting commission-only sales representatives to most of my clients, there are elect situations where hiring salespeople that are 100% commission-based works.
Read my insights when hiring commission-only and salaried salespeople.
When commission-only sales reps work
Commission-only salespeople earn everything directly from their sales, i.e., selling software solutions, real estate, consulting services, and more. Commission-only jobs attract new sales reps because there is an allusion that they can earn a higher income than salaried salespeople.
That is only sometimes the case.
There are select situations in which you want a higher commission or commission-only on the sales team:
- High earning potential
- Highly regulated industry
Let’s dive deep.
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Income potential is very high
The first situation where commission-only sales reps work is when the potential upside for the income potential is very high. High-income potential signifies half a million or greater in a realistic sense.
It does not have to be first-year earning potential. However, if someone can make $400,000-$700,000 a year, consistently and realistically, then moving to a 100% commission-only model works.
Talented commission-only salespeople, top-end earners in those industries, and companies usually earn seven figures. As a result, a base salary is unnecessary.
You ensure your salespeople can develop their revenue streams; real estate is a great example.
Your sales organization effectively gives the sales rep candidates a platform to do their own thing.
Therefore, you don’t need that commitment level. You’re giving them the ability to operate, which is a fair exchange where you reap the benefits of the proceeds.
Essentially, it is a partnership with that individual.
The first situation where commission-only sales reps work is when the potential upside for the income potential is very high, with half a million or greater in a realistic sense.
In highly regulated industries
The other key component to consider when hiring commission-only sales reps is a heavily regulated industry where entry barriers are demanding.
Again, real estate is another great example because your commission sales reps must have a real estate license, a broker, broker sponsor – essentially liability.
You see the same thing in the highly regulated financial services industries. You’re giving them a leg up, but it’s an eat-what-you-kill model.
The commission sales reps work with someone that has broken into that industry and utilizes the established infrastructure of the organization.
Commission-based sales reps are effectively running their own business inside of your business.
Again, this links directly with higher earning potential for salespeople.
It is a very entrepreneurial situation for commission-only sales applicants.
You need a heavily regulated industry where entry barriers are demanding for a commission-only sales team to work.
When commission-only sales reps are a mistake
There are generally two reasons why people choose to hire commission-only sales teams:
- Cost-saving
- Don’t understand the commission-only job
Firstly, it does not work when a business owner recruits a commission-only sales team to avoid paying out salaries or managing a sales organization.
Quality candidates are looking for investment from you. If you’re too cheap to pay them a base salary, you’re greedy, but more importantly, you’re wasting time and hindering progress.
It’s just a bad idea. Period.
However, many business owners must know the difficulty of making commission-only teams work.
If the barriers of entry are low and your company sells services or products in a commoditized market, a commission-only sales team does not work.
For example, a digital marketing company, or if you sell luxury goods or courses and want a high ticket closer, you can’t pay them strictly commission.
The problem is that the sales rep candidate is not committed and won’t understand the value of what you sell.
They’re going to sell little.
You will have a revolving door of sales hires, where only a handful will provide the appropriate effort. And that effort will only last a concise period.
You will waste a lot of money hiring candidates and on sales training.
These sales candidates are likely low-caliber individuals prepared to work for nothing, but that will change quickly. And so that’s where it becomes problematic.
Ask yourself these questions before you go commission-only:
- What is in it for the sales rep?
- Why would the sales rep be committed to you?
- Why would the sales rep stick around?
Just know this: you will waste money, time, and energy without making progress. A commission-only sales team is a bad idea if there is no two-way commitment level.
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Commission-only sales team disadvantages
The benefits for commission-only sales reps are also the most significant disadvantages. It denotes this as a poor 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 disadvantages of a 100% commission structure:
- High turnover rates in new commission-only salespeople
- Limited accountability with commission-only salespeople
- Requires to increase support and infrastructure for teaching sales reps
- Difficulty attracting talented sales professionals
- Fosters the wrong sales activity
Let’s dive deeper.
High turnover rate
Sadly, most commission-only sales reps fail to make a livable wage.
These people are only sometimes the best sales rep candidate; they are often risk-takers with a strong entrepreneurial bent.
They will act on entrepreneurial instincts and eventually leave you. On the other hand, they cut corners at your new customers’ expense. And you end up firing them, but only after your business suffers.
Increase support & infrastructure costs
The company support you need to provide your new sales rep hires in 100% commission teams is disproportionate to the progress you will make with them.
You must develop the sales process, sales cycle, lead generation, hiring process, and human resources to ensure they interface correctly with customers.
You’re essentially exchanging salary for support and infrastructure; it’s counterintuitive.
Limited accountability
It’s naive to think that a contractor has the same level of commitment as a salaried employee.
100% commission contractors are paid for what they sell. There is only accountability if they sell.
You pay them after they sell, not before. So, their commitment to the sales process, sales cycle, and sales activities does not exist.
You must develop the sales process, sales cycle, lead generation, hiring process, and human resources to ensure they interface correctly with customers.
You’re essentially exchanging salary for support and infrastructure; it’s counterintuitive.
Discourage top-tier sales professionals
I have hinted at this already; A-Players only accept commission-only positions if in the industries previously listed.
Let me be clear: sales reps make 2/3 of their annual income solely from salary without the average sales commission rates.
These are people making $80k-$120K. They are not bottom feeders.
Cultivates undesirable sales activities
The objective of a commission-only salesperson is often at odds with target client outcomes.
A commission-only sales rep will pursue activities that put more money in their pockets. The 100% commission structure amplifies the pursuit of risky activities and breeds competition.
I am all for competition, but not at the expense of missing targets, bad culture, or client outcomes – no exception.
DO YOU NEED HELP RECRUITING SALES REPS?
Remember, salespeople are paid to sell. You don’t want order takers, so weed out unsuitable candidates early and only grow the team members committed to the organization’s goals.
Do you know how to find creative solutions to these issues preventing progress in your company?
Can your team be innovative?
No. Then, your business needs help.
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We help close deals faster and at a higher rate. Rose Garden uses a combination of assessments to identify sales team members’ strengths and motivators, providing you with lousy cultural fits and recommendations. We present our Team Member Assessment findings in a one-day workshop.
We also recommend our sales accelerator assessment that provides you with an in-hand diagnostic and sales experience roadmap for quick results.
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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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