As a 45-plus-year professional I have consistently wondered where business owners get the idea that they can hire commission-only sales personnel, at very short commission margins, taking no risk for collections, credit or reversals, and still believing that they are offering a fair and equitable opportunity.
Other than the owners of the company, who else is required to advance cash out of pocket to generate business and make business happen? Who else has developed elements of business mastery that provide potential clients with a professional view of your company. The alternative is to hire a bunch of hopefuls and hope maybe some will stick. What does this say about your company? To your current and potential clients?
Today’s business climate calls for more than an order-taker and someone driven to sell on a short timeline and a short leash. (How else would you describe commission-only?)
Professionals know that decision making is now fractured and exits at many levels of the organization, requires executive buy in as well as user buy-in and influencer buy-in. The days of the “one-call close” are pretty much gone, unless you have a very high-demand product in a limited supply environment.
Consider that a commission-only salesperson must still make his/her monthly living expenses and is also investing money in your business that you may or may not be reimbursing. Parking, gas, auto wear and tear, dry cleaning, office supplies, computer and cell phone connections — the list is long and the expense accounts are rare.
If your organization is living on 6% or 7% margin of profit, you need to trim some non income generating fat from your payroll or increase your prices. What percentage of net profit is a fair and equitable amount to pay to someone who just generated new business and a potentially ongoing client for your company?
According to the Kilgore Report on Commission Only Sales & Wages:
There are three situations or combination of situations where commission-only sales seems to work well…
1. When the product is easy to sell, commission-only provides a way for the salesman to maximise his earnings. I have a friend that sells advertising on a commission-only basis, when his peers have a base combined with a much lower commission. He chooses commission-only as he spends his day working lists of old customers which have a very high percentage of people that are ready to make a buying decision.
2. When the salesperson is already selling to the target audience and your product would simply be layering-on additional revenue with perceived minimal effort. This option also covers selling though an ad hoc opportunity, e.g., “I sat next to this guy at lunch and…”
3. Commission-only also seems to work best when there are short sales cycles measured in hours or days. Long sales cycles cause two issues: First, the time investment increases requiring a much greater ROI for the salesperson. The second issue is the risk the sale will be “undermined” by competition during a long sales cycle.
When does it not work…
Obviously it’s not going to work when you get the reverse of the above: When your product is difficult to sell, when your salespeople have to find brand new customers, and when there are long sales cycles.
However it also doesn’t work when it’s an excuse to not invest in your sales activity. I don’t mean just pay retainers, I mean not even providing adequate training, management and follow-up. All too often commission-only is perceived as an “I’ve got nothing to lose” solution because it supposedly costs the vendor nearly nothing. The reality is that it can lull you into a false sense of activity or worse you can have your brand completely trashed.
It doesn’t work when the agreement is informal or the audit-trail is poor quality. Both which normally translate into perceived breaches of the agreement, a lack of trust, and sales coming to a stall-out. All too often I see merchant-banker types fighting over who was owed the commission on a deal that mutated and had multiple parties involved along the route to a transaction.
Finally, it doesn’t work when what each party brings to the table isn’t valued properly by the other party. For instance, I am endlessly approached by people who wish to access my network for free (the one I have slaved long and hard to build) and only wish to pay me if they can conclude a transaction – an activity I have no control over. Another regular theme is that I can have a website built for them at no cost and then make margins from their brilliant product.
A couple of other points to consider…
1. A commission-only sales force has little interest in providing customer service beyond the sale.
2. The hiring and management of commission-only staff can can be a huge drain on the management team as these people are all independent operators.
This text from the report really says it all.
Thanks for reading!