Straight Commission for Sales Compensation
Commission-only sales compensation plans are designed to attract the best sales reps and maximize performance. We discuss the pros and cons of straight commission for sales compensation plans.
In general, sales reps are much more keen on the idea of commission-based compensation than employers.
A first-rate sales rep has the ability to rake in huge amounts of income from his sales activities, sometimes at the expense of the resources the company needs to achieve its strategic goals and objectives.
On the other hand, a well-structured commission plan is one of the best incentives for inspiring a sales force to perform at levels that are above and beyond your expectations. When a sales person understands they will be personally rewarded for success, their motivation for increasing their sales volume goes through the roof.
Straight commission for sales compensation has both advantages and drawbacks for your business. Before you make the leap to a purely commission-based program, you'll want to evaluate both the pros and cons of paying your sales reps by commission alone.
- Performance-based. Straight commission compensation programs are entirely performance based. You pay nothing unless the sales rep moves product for your business.
- Cost vs. sales tracking. Since compensation is directly tied to performance, commission only compensation plan make it easy to track costs against sales. You'll know exactly how much it costs to sell every deliverable your business produces.
- Lower investment. Commissions eliminate the risk of losing your investment in a non-performing employee. Although you may need to invest resources in training and benefits, you won't waste resources on bloated salaries.
- Focus on short-term results. Commissioned sales employees tend to focus on short-term results rather than the achievement of the company's long-term objectives. If the sales team is an integral component of your long-term strategy, a commission plan may not be your best option.
- Lack of customer support. When every commission counts, sales reps favor the acquisition of new clients over customer support. Unless customer support is a separate department, straight commission strategies can severely damage your reputation with existing customers.
- Higher turnover. When the market heads south, straight commission employees head for the door. This can be even more problematic if your company experiences a temporary downturn that doesn't affect the rest of the industry. If you're committed to a 100% commission compensation plan, consider offering sales staff salaried assistance until business rebounds.
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