Why a Commission-Only Pay Structure is Bad for Business
Working in the sales industry, you meet a lot of business owners and managers that want to pay their salespeople only commission.
There are a lot of beliefs that it’s more motivating for salespeople if they don’t receive a salary, if they only bring home a paycheck if they work extra hard.
And the hope is that the business saves money this way.
The truth is, there isn’t one right answer in the salary versus commission-only debate that can apply to all businesses.
But for most businesses, a commission-only pay structure is going to be more harmful than helpful.
While a business should always weigh the pros and cons of how they want to pay their salespeople, here are some of the cons for not providing a 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? And were they given the time and opportunity to show growth?
- Was there a documented process in place for how they were expected 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 greatly improves the chances of having successful salespeople on your team without the need to change 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. While it’s always been important in some ways at the top, we’re now seeing that a strong and cohesive culture is beneficial for every person at every level of the company.
Except for in sales, sadly.
There tends to be an “every person for themselves” attitude in the sales department. That’s part of the problem.
And having salespeople on a completely different and purely performance-based pay structure sets them even further apart from every other department.
If you truly value every employee equally and strive to have a strong company culture, then paying everyone a fair and comparable salary is vital. And it shows them that their time and effort is important, 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 a lot 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, then that’s even more work.
And since closing every deal is impossible, that means that work was done for free.
To make matters worse, that effort might even pay off down the road, and possibly in a way that won’t benefit your salesperson.
They might have left an impression that will lead to a closed deal later on. Or a client might be impressed enough with your company to refer others to it, but those referrals might not know to call that salesperson. Even if they do, it might be months before they call.
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.
- When salespeople work on commission, they have no incentive to find the best clients. Their only motivation is to close deals. Any deals.
Every company should have a target market, a perfect client in mind. And while that perfect 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 just 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.
We’ve talked before about why sales hunters aren’t usually a great fit for most companies. Most of the same arguments can be made 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 both the reputation of the company and the people who work on the fulfillment side of the business.
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 bring in clients and money, and they should be compensated 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 values of the company.
If you’re worried about paying unsuccessful salespeople, then you might want to look at restructuring your hiring and training process, not your pay structure.