The three dominant compensation theories I will cover in these posts are: 1.) straight commission, 2.) salary + commission/bonus & 3.) salaried + annual raise. I'm also assuming that the companies have open territories.
If we are dealing with assigned territories the world looks quite different. Over the next week or so, I will give you my thoughts on these sales compensation programs. Am I 100% correct? No, probably not, and I'd love to hear your thoughts on the subject.
Straight Commission
Many straight commission jobs these days start with a draw or a 'clip-down' program. Some people argue that the draw immediately puts the rep behind the eight ball. Some companies realize that in today's market a sales rep won't be making them money in any type of sophisticated sales for six months at the very least (heavily relationship based sales up to two years). If they value training and quality new hires, then they understand that hiring a sales person is a long term investment. Or they don't understand that and they just continue to throw people at the problem until one of them sticks. My advice? Don't do that. Nothing will hurt customer good will as much as seeing a new sales rep every couple of months.
Now what can you say about the old-fashioned straight commission rep? A lot of senior sales reps I respect share a common characteristic: greed. Greed motivates them to work harder and excel. The old timers also tend to be quite eccentric and usually have a partially adversarial relationship with their employer. They are the mercenaries of the sales world and while many of them have been with companies for 30+ years they feel more like a contractor than an employee.
I wont ever forget the first time I really saw one of these adversarial relationships in action. An older rep came to a sales meeting with a copy of the previous month's orders in hand. Then, he went through his commission report line by line, meticulously checking each entry and the company's math. I must have looked stunned, but the rep just smirked and said that he'd been 'cheated' out of 10 dollars once and he was going to be damned if he ever let that happen again.
"Sales" for commissioned employees is as they are quick to point out "a contact sport." Sure, they'll go and buy the new guy a couple of beers at night, but if the conversation turns to shop and leads are discussed, these guys will run you over on the way to the A-list potential you were dumb enough to tell them about the night before.
The Positives
So while saying all this, why is it the time tested methodology for paying sales reps? It keeps the rep hungry: he has to work or he doesn't eat. The company takes very limited financial risks. A definite benefit of this compensation structure is that people essentially self-fire by not being able to provide a living for themselves. Want to keep your unemployment claims low? This is how. Your sales rep wants a raise? He can get one today by making a sale. You pay for performance and reps are paid for performance.
Psychologically this is the system where your reward center is tickled every day. Every day's performance brings rewards. Did you write $600 of commission today? Feels good doesn't? Want to keep feeling like it? Continue making it happen!
The Negatives
Unless you have a solid nestegg or support, getting into a straight commission job can be a very bad idea. You aren't guaranteed a salary. You could and you probably will spend days at the beginning working 12 hours per day and not earning a dime for it, and the next day you may work 3 hours making $500 that day in commission. That also explains why a lot of banks would rather not give straight commission sales reps with under two years under their belts a car or house loan. They are naturally risk adverse and you have risk written all over you. After a couple of 'bad days' you might ask yourself why am I even leaving the house and burning $4 per gallon gas for nothing? If you can't overcome this feeling, at this point it becomes self-fulfilling, and you should probably think about a job outside of sales or in a supervised office environment.
Conclusion
For a sales person, this is the highest risk/reward compensation model. For the company, it is the lowest risk. Sure they may pay a little more in the long run, but they never risk real money. The other issue is that this often does lead companies to chew through new sales people and alienate customers. If you feel comfortable doing this and can take a draw and have enough money saved away that six months of being poor doesn't scare you... well go for it!
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