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Commission Only Sales Reps or Salaried Reps, which is better? 08/30/2012

Posted by Lease A Sales Rep in Education, Sales.
Tags: , , ,

The issue for many businesses seeking growth has been the question of hiring sales people.

Many businesses that are boot-strapping their growth want to hire a sales person but they are risk-averse. They want sales people with a book of business to come work for them, close sales with that book of business and want them to do it on a commission only basis. This is the part where the business wants his/her cake and wants to swallow the cake. Good luck with that one!

Businesses that are risk averse or capital strapped sometimes both are at play, look to go the most cost effective route for them, which is to hire sales reps on a commission only basis. The statement that “Good” sales reps work on a commission basis is a fallacy. Those types of sales reps, the “Good” ones are selling big ticket items, not your stuff.  Forget about the residual income/approach line to get commission only sales reps to work for you, they have bills to pay and don’t have the time to wait for a residual check to pay their bills.

The benefit of hiring a commission only sales rep is that you do not have to pay them unless they make a sale.  Good for you right?? Well, lets look at that.

Finding commission only sales people is very * very hard work. Finding “Good” commission only sales people is even harder. So you place a recruiting ad somewhere, get some resumes, do some interviews, hire some reps. You will train them, give them marketing materials (that you paid for) and wait for them to close a sale.  Many commission only sales reps do not end up closing sales for you because of these factors;

The sales cycle is long The product or service you are selling is hyper-competitive The commission is not enough for them, because your price point is too low They usually sell other products and will not focus on yours, whatever sells fast they will sell first They can’t close a sale Major commission sales reps, the BIG boys are selling big ticket items for a big check, they are not working for you

So the commission only sales reps leave you, they never make a sale and you go through the whole process again. They are not accountable to you, because you are not paying them.  Now, you did not lose any HARD dollars on a base pay, but you lost VALUABLE time. So go ahead, recruit, hire, train, give them materials and do it again.  You may find 1 or 2 reps in 24 months after you have gone through 60 sales reps.  Or you will get a few sales, that’s it.

The upside of commission only is that you save hard dollars in pay, not counting the sales materials. The down-side is that in 24 months you are no bigger than you were a  few years ago. If you want to grow your business, you need to spend money, sorry. No shortcuts.

The other way to hire sales reps is to offer a base plus commission.  This method gives the sales rep something to live on, while working to make sales. The issue of how much of a base salary comes into question. Do we keep it low enough with a high commission to motivate the rep? Or do we give a good base with a smaller commission?

To answer this you need to know what the sales cycle is for your product or service and be “REALISTIC”. If the sales cycle conservatively is 3 months, then say 3 months. Don’t make it 60 days by being aggressive. Factor the real sales cycle into your calculations so that you can determine the base salary plus commission.

The other benefit to a “salary” or small base is that the sales rep is now accountable. You are paying them and one would assume giving them sales goals. Additionally, the sales that come in should be real sales, versus, those that are sold on a commission only basis. Commission only sales tend to have higher failure rate, back-out rate or buyer’s remorse due to high pressure tactics sales people will use to get the sale for the commission check.

Unfortunately either route you chose you will pay, now or later.

You chose.

Hope this help.

Gilbert Pagan
Lease A Sales Rep


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