What’s The Best Way To Pay Salespeople?
A question I am frequently asked is, “What’s the best way to pay salespeople?” While there are many, many different compensation programs they are generally going to fall into one of three categories: straight commission, straight salary and salary plus commission.
I’m sure there are proponents and opponents of each, but I’ll give you my opinion—since this is my blog—and then I’d love to hear your feedback in the comments section.
First, let me address the elephant in the room.
Okay enough of that. Seriously—whether you are in management or a salesperson the compensation plan has to work for both parties. Unfortunately, there are many times where one or the other feels it unfair and I’ve yet to see a situation where that didn’t cause problems. So, no matter what you choose you should get buy in from everyone.
If you’re a salesperson, understand management has a tough job of making these things fair and equitable across geographic territories and other variables and if they go into it trying to be fair—give them some slack.
Under this scenario the salesperson is paid strictly based on performance. There is no base salary and if they don’t sell they don’t eat. It’s been my experience this plan has the highest potential upside for the salesperson who is willing to put their money where their mouth is. If you truly want to earn the “big bucks” you’re probably going to have to do it on a straight commission plan.
This program pays a flat salary to the salesperson regardless of performance. Good or bad, up or down—the pay is the same. Generally this is going to be a lower earning potential simply because the employer is shouldering 100 percent of the risk. If there are no sales, they still have to pay someone. That’s not a good position for them, so don’t look for this one to produce a very high earning potential.
Salary Plus Commission
The third and final scenario is perhaps the most common—and the easiest to administer. With a salary plus commission program the salesperson is paid a base salary—something generally lower than what it takes for them to live and then has the ability to earn a commission on top of that. Most of these programs have minimum requirements before the commission kicks in—not paying the salesperson from the first dollar generated.
If you go with this program my suggestion would be to make the base high enough to where the salesperson doesn’t starve and low enough where they think they might. They need to be stretched and not hit a comfort zone and coast.
At the same time the commission structure should be such that they are rewarded for growing profits. Don’t set the commission portion of this (or any plan) so low that they can bring in $10,000 of gross profit and earn an extra $100. That’s very little incentive for them. Have the incentive match the effort and reward.
If they bring in $10,000 in gross profit (over their initial required number), perhaps they earn 10 percent of that or $1,000. Then after they reach the $20,000 mark in gross profit that goes to 15 percent and so on.
Let them share in the wins.
There is one common thread in any answer when you ask, “What’s the best way to pay a salesperson?” That common thread is that everyone should be reaching for the same goal. Give them an incentive to achieve what management wants: market share, gross profit or whatever it is you are looking for.
And a final note: never pay simply on sales. Doing so will give the salesperson the incentive to sell with no regard for profitability and that’s not good for anyone.
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