NFIB

Three Ways to Pay Your Sales Force
05/ 18/ 2004

by Jeffrey Moses

Small-business owners often face an important decision when hiring a sales force. A start-up company may need a sales staff desperately, but could be hard-pressed to offer an attractive pay package. By choosing wisely between payment options -- and perhaps by blending the options creatively -- a strong and dedicated sales force can be created.

1. Commission only:

This clearly is both economical and convenient for a start-up company. When they sell, they earn money. When they don’t, the company isn’t out anything other than normal sales costs such as phone expenses, shipping/mail and travel.

However, experienced and successful sales pros often balk at working on commission only. When someone has a family to support, the risk of having a month or two of zero sales is too much to bear. When companies pay sales personnel on commission only, the result can be a somewhat inexperienced sales force lacking in loyalty, with individuals coming and going frequently.

One solution is to offer a very high commission rate. When the standard industry commission is 5 percent, a commission of 15 percent may motivate experienced sales people to try it for a few months. If they can establish a sales base at that higher commission rate, they will end up making more money than if they had been working at a lower rate with a guaranteed additional salary.

2. Commission plus salary:

This is the most common way to pay a sales staff. A guaranteed bimonthly or monthly salary is agreed upon, with an additional set commission paid on every sale. Because the salary is guaranteed (taking some pressure off the sales people), the percentage of commission in this arrangement is usually less than when paying commission only.

The advantage of this arrangement to a company is that a baseline financial structure is established -- the company knows how much will be paid to the sales staff each month, whether sales are made or not. The disadvantage to the company is that until a certain level of sales is reached, the sales staff will cost more than it brings in.

3. Salary only, no commission:

This payment arrangement effectively turns a sales staff into order takers unless the company creatively offers bonuses to the entire sales staff for higher levels of sales. This can encourage teamwork and motivate individual effort. If creative payment options such as this aren’t implemented, a salary-only situation usually doesn’t motivate a sales force. The result can be lethargic sales figures.

Creative blending:

There are several ways to blend these payment options. One of the best is to offer a smaller guaranteed salary along with progressive percentage commissions. This can motivate your sales force tremendously. The trick when offering a progressive commission option is to not back off when successful sales people begin to move to the higher levels. To do so will cause resentment and ultimately demoralize the sales force.

Another option is to offer a guaranteed salary with small commission during a person’s first few months with the company, then progressively lower the salary and raise the commission percentage. This gives motivated individuals the chance to increase their earning capacity as they become more experienced in the industry.

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