With so many organizations struggling to make budget many sales managers have recently emailed me about sales compensation. Many have asked about whether or not they should continue with salary positions or change over to commission only.
I recall a publishing concern that utilized a salary/commission approach until 2002 when it drastically switched to a commission only plan. Craig who worked for the company at the time was nervous at first however when the dust settled he was not only whole but also made more money.
Some would argue this is not always the case. Yet there are some things to consider when deciding whether to alter sales compensation.
First, it is important to understand that selling professionals are really entrepreneurs at heart. Dependent on the organization, selling professional establish their own hours while also being responsible for finding their own accounts. By providing a commission only approach sales representatives will become compensated like an entrepreneur. In other words nothing happens without something being sold. In this light selling success is based on a zero sum game.
Second, there are many instances when sales representatives constantly succumb to prospective clients requests to negotiate price. When sales are based on commissions only sales professionals are less apt to negotiate since their compensation is based on the “gross sale”.
Third, as a former sales manager I was always intrigued when my sales staff wanted me to pay for a myriad of resources. Informing them that budgets were tight they became instantly angered. However when sales professionals become responsible for “all” expenses they quickly realize that flying first class, residing at five star hotels and having the company pay for everything becomes less important. Craig whom I mentioned above eventually decreased his expenses by 60% and instantly raised his margins. When sales agents become responsible they become better corporate citizens.
Finally, switching to a commission only requires that sales professionals concentrate on customer-centered relationships. Each sales agent clearly realizes the importance of treating customers as a valued asset. This is not to say that they do not initially but when sales representatives are responsible for all factors they return calls, work better with account receivables and payables as well as shipping and development. Altering to commission only places full ownership on sales.
Switching over to a commission only plan is not easy and cannot occur overnight. However for organizations that seek to better margins, enable sales ownership and create more aggressiveness on selling it might take a zero sum approach into a well-founded gain.
In switching over to a commission only plan what are some of your best practices. Please provide your comments in the space below.
