The pros and cons of both commission-based sales positions and salaried positions have been well-documented, so we won't be discussing that in this article. Let's talk about something other than questioning which compensation plan is best for your company and its salespeople.
Suppose you're eyeing a new gadget; however, this must-have toy will set you back $5,000. What if you also need to replace a couple home appliances, spend $20,000 on a landscaping project, pay for a funeral, dish out for a European vacation, and endure a new college tuition? After all of that supposing, the calculator shows that you need to come up with around $75,000 - soon.
With a salaried position, salespeople are essentially on a fixed income - perhaps a more attractive fixed income than a retiree, but fixed none the less. And these days, with most people living at or above their means, fixed simply becomes another word for broke! The thought of coming up with $75,000 in discretionary funds is daunting unless a salesperson is the rare exception who has been squirreling away most of his income. This is the world of the salaried salesperson. Play it safe, but don't expect any big commission checks.
With a commission-based plan, the salesperson simply makes a decision to step it up. How much more do they need to sell in order to earn an extra $75,000 this quarter? Can they do it? Can they come close? This is how the commission-based salesperson thinks and functions. Make a financial commitment to something and then earn the money to pay for it. Of course, the obvious downside to this scenario is this: If this salesperson doesn't have a big financial commitment at this time, there is a possibility for a period of complacency where s/he doesn't work as hard until performance finally suffers or the next financial opportunity appears. While this does happen on occasion, it is an ongoing risk with salaried salespeople.
Even if you see the obvious advantage to commission sales (it doesn't have to be 100% commission-based), you can't easily change from salary to commission. Why? Most of your sales force will quit! If they wanted to work in a commission sales environment, they wouldn't have gone to work for you in the first place...
There is a compromise though. You can make both groups of salespeople happy. I wrote this article two years ago to illustrate exactly how you can make this possible.
Sales Force Compensation is just one of many important topics we will discuss at Kurlan and Associate, Inc.'s Sales Leadership Event May 10-11 in Boston.