Have you ever offered or been offered a sales job that paid only commission? It might sound very appealing for both the employer and the employee. The employer doesn’t have to provide wages until the employee actually performs. The employee has an “uncapped” earning potential, and might even be able to set their own schedule.
This compensation structure can work (and historically has) but for most situations, it only causes problems. Here are five reasons why.
1. IT’S EXTREMELY DIFFICULT TO FIND THE RIGHT TALENT
If your position requires experience, education, licensing, or any other else of that matter, it’s going to be very hard to find the right talent. Some job seekers have been burned by a commission only structure in the past. The more mature a job seeker is, the more they’ll see commission only as working for free and despise the uncertainty features of a commission only compensation package. And for good reason. WHo wants to take a job only to realize they might not get paid for 4-6 weeks? Really nobody. Someone with talent, experience, and a solid educational background is looking for a company willing to invest in them (i.e. a solid base salary).
By offering a commission only structure, you’re opening the door to inexperienced people. What you’re not paying in base compensation, you will be making up for in training costs and resources. Then once they’ve received formal training, they’ll jump ship when the next sales career opportunity comes knocking.
2. IT CAN GIVE YOUR COMPANY A BAD REPUTATION
The internet is a powerful resource for job seekers. Websites like Glassdoor and Indeed can be very revealing about your company. If a commission only structure is creating high employee turnover, you can expect to have horrible reviews about your company. Good luck trying to attract the next salesperson that your company is highly reputable.
Additionally, a commission only structure basically says your company is too cheap or not doing well enough to offer a solid base. Even if you hired a salesperson who didn’t make any sales, you’re still getting value out of that person. They’re distributing your company’s brand and they’re warming up prospects for future opportunities. Your company could see that as marketing dollars well spent. According to the American Advertising Association, the average television commercial costs a company around $342,000. And those numbers are as of 2008, 10 years ago! You could pay 8-9 salespeople a solid base salary and see better results than a TV commercial ever would.
3. MOST PEOPLE PERFORM UNTIL THEY ARE FINANCIALLY COMFORTABLE AND DON’T REALLY CARE FOR “UNCAPPED” POTENTIAL
Even when you do find the right candidate (you know… the “hungry” self-motivated salespeople), they’ll only perform until they’re happy financially. That’s typically when they can pay all of their bills, go out to eat several times a month, save money for retirement & emergencies, and still have money left over for fun stuff. After that, most people really don’t care to make more money than they know what to do with. Your company’s growth will plateau. That’s when some companies resort to “controlled turnover” methods.
4. IT’S HARDER TO DIRECT YOUR EMPLOYEES
Think about it. If you hire someone and pay them to do one thing (make sales), are they going to do the other things you ask? Are they going to dot their i’s and cross their t’s with service work? Are they going to attend meetings? Maybe once or twice. But the employee is always going to have the “what’s in it for me” mindset, because remember, they’re only getting paid to do one thing. Make sales.
5. GOOD EMPLOYEES THAT HAVE A BAD MONTH WILL LEAVE
Let’s say you have talent that consistently hits their sales targets. They’ve likely become accustomed to their new lifestyle (more money to spend, which means monthly bills have increased). The second they have a bad month, and they can’t afford their new lifestyle, they will start to find an opportunity that either makes more money, or is easier to maintain. This is bad for the employer. It means you’re spending more money to hire new talent, after already having a potentially bad performing month.
If you’re company is looking to hire new salespeople, think about offering a strong base, at least to start out. This shows talent that you’re willing to fully invest in the team.
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