Working in the sales industry, you meet a lot of business owners and managers that prefer a commission-only pay structure for their salespeople.
There are a lot of beliefs that it’s more motivating for salespeople if they don’t receive a salary or if they only bring home a paycheck when they work extra hard.
And the hope is that the business saves money this way.
The truth is, there isn’t one correct answer in the salary versus commission-only debate that can apply to all businesses.
But for most businesses, a commission-only pay structure will be more harmful than helpful.
The Drawbacks of a Commission-Only Pay Structure
While a business should always weigh the pros and cons of how they want to pay their salespeople, here are some of the downsides of not providing a base salary.
Not providing a salary shows a lack of trust from the business.
Let’s face it. Every business owner and sales manager has had bad experiences with under-performing salespeople before. And that’s hard to deal with when you’ve invested time and money hiring somebody new.
So the answer to that leads them to think that having salespeople on commission will prevent a lack of performance.
But changing the pay structure is unlikely to fix the problem.
Usually, when salespeople fail, the business plays a part.
- Were they set up to succeed in the first place? Did they have the time and opportunity to show growth?
- Does the business have a documented sales process explaining how they expect salespeople to perform? And are the expectations for salespeople realistic and achievable?
- Could the hiring process use some improvements, such as requiring personality assessments and similar things?
Hiring and training new salespeople is not easy, but having a successful hiring process dramatically improves the chances of having successful salespeople on your team without changing the pay structure.
But hiring is only half the battle.
Company culture is difficult to create or maintain with a commission-only pay structure.
Company culture has been an increasingly hot topic over the last few years. It’s always been important in some ways at the top. But we’re now seeing that a solid and cohesive culture benefits people at every level.
Except for in sales, sadly.
The sales department tends to have an “every person for themselves” attitude. That’s part of the problem.
And having salespeople on an entirely different and purely performance-based pay structure sets them even further apart from every other department.
If you genuinely value every employee equally and strive for a strong company culture, paying everyone a fair and comparable salary is vital. And it shows them that you respect their time and effort, regardless of their department.
Commission-only workers always end up working for free, something nobody should want for their employees.
Believe it or not, there is usually much more to selling than just closing the deal.
Even if you have a marketing department or have leads that come to you, salespeople still have to spend time qualifying, pitching, and following up. If they have to do the prospecting themselves, that’s even more work.
And since closing every deal is impossible, all of their work was free. To make matters worse, that effort might even pay off down the road, possibly in a way that won’t benefit your salesperson.
They might have left an impression leading to a closed deal later. Or the prospect might be impressed enough to refer others. Unfortunately, those referrals might not know to call that salesperson. Even if they do, it might be months before they do.
Nobody should work for free, especially when the company might reap the benefits down the road.
But the final reason might be the most harmful for the company itself.
Salespeople have no incentive to find the best clients when they work on commission.
Their only motivation is to close deals, any deals.
Every company should have a target market or a perfect client in mind. And while that ideal client might not actually exist, bad clients do.
Unqualified clients hurt a business. You might not be able to fit their needs, or they may be more work than they’re worth.
Either way, it can lead to a hurt reputation and disgruntled employees.
But a commission-only salesperson probably isn’t going to care about all that. Their job is to close deals and earn their paycheck, no matter what.
I explained why sales hunters aren’t usually a great fit for most companies in another article. I can make most of the same arguments for commission-only salespeople. Loyalty isn’t usually a priority, and, out of necessity, the values and needs of the company come in second place to the pressing need to earn a paycheck.
Furthermore, they have to go from one client to the next. Why spend time deepening or maintaining a relationship with a client when the commission is already earned?
This can also hurt the company’s reputation and the people working on the fulfillment side.
Your Pay Structure Helps Define Your Company’s Culture
At the end of the day, there are always exceptions. Just like there are some types of businesses that thrive with hunters, there are some that are going to do just as well with commission-only salespeople.
But generally speaking, salespeople deserve a salary just as much as anybody else in the company. They’re the ones bringing in clients and money. Businesses should consider compensating them fairly for both their time before and after every sales conversation.
You’ll be more likely to train and keep great salespeople, and their values will mirror the company’s values.
If you’re worried about paying unsuccessful salespeople, you might want to consider restructuring your hiring and training process, not your pay structure.