Commission-only Pay Structures Suck
In my business, I talk to a lot of sales managers and business owners, and a fair amount of salespeople. One of the things I am always interested in is how they, (or the company they work for), hire salespeople and what their expectations are for their sales team.
One of the things that is discussed over and over again is salary versus commission pay structures. There are tons of opinions on what works best, which one motivates salespeople most, and whether each one is better for the employees or businesses.
The truth is, there isn’t really one right answer that can apply to all businesses.
The other truth is, commission-only structures suck… most of the time.
Honestly, even though I’ve heard it over and over again, it still astounds me when a business owner tells me they’re looking to hire a commission-only salesperson.
Personally, I would never go work for a company that was going to pay commission only. I mean, I wouldn’t do it again, for a number of reasons.
Reason #1: Paying commission-only shows a lack of trust on behalf
of the business owner.
I think that business owners who want commission-only sales reps have had bad experiences with them in the past. They made an investment in somebody, it didn’t go well, and now they’re scared to shell out the money on somebody new.
But I have some questions if that’s the case:
- Did you set up behaviors and let them run their playbook for a while before getting rid of them?
- Do you have a process in place to hand over to new hires?
- Do you require personality assessments before hiring somebody?
- Are your expectations realistic and clearly stated?
If the answer to any of these questions is no, then maybe the bad experience wasn’t totally on them.
I just wrote about how hiring salespeople is not easy. Hiring practices for salespeople isn’t specific enough for that role, it hasn’t changed much over the years, and it’s a difficult skill set to identify in a single interview. But all of that is fixable.
But hiring is only half the battle. Your company has to be set up for salespeople to succeed.
Reason #2: Commission-only structures usually make for
a lack of company culture.
A lot of companies are focusing more on culture. There is a lot of value to be gained in having a cohesive, strong company, and team culture. Your employees will want to stay longer, they will more strongly support the mission of the business, you’ll save a ton of money with less turnover, and many other reasons. Basically, your team will be happier and in it for the long haul.
But for some reason, this idea tends to go out the window with the sales team. Too many people have a “you’re on your own but you must hit your quota” mindset with them.
In my opinion, you’re not building a company culture if your salespeople are only paid on commission. It basically shows that the only value they hold in the company is how many deals they close. And while I understand that making money and closing deals is the point, there is a lot more to selling than just that, and it doesn’t begin or end with a yes or no.
Having a strong company culture implies that each employee is important. Their time, work-life balance, and independence are meaningful. This idea doesn’t make sense if you don’t pay people for their time.
Reason #3: Paying only a commission inevitably means that
salespeople work a lot for free.
You might have a company with a marketing department, you might have leads come in that you hand to your salespeople, and they might not have to do much prospecting themselves. But that doesn’t mean that there isn’t a lot more to selling than closing a deal.
And if your company is set up where salespeople are also finding the leads and prospecting, they’re carrying an even bigger load.
But even if all they do is call qualified leads to close deals, a commission-only pay structure still results in a lot of free work.
Here’s why that is:
- Just because a salesperson gets a no from a client, they may have left an impression that leads to a yes further down the road. But if your only paying commission, that road may be long enough that the salesperson is no longer there when the client changes their mind. Therefore, that eventual sale will be gained from free work from a former salesperson. How is that fair?
- If your salespeople are putting the work and following your process, then they are doing everything within their power to close deals. But they don’t have mind control, and they can’t force a yes on every prospect. Again, that’s unpaid time and effort for every no.
- Salespeople build relationships. Even if they don’t close a deal, they can build a relationship that leads to business through referrals. And while that will eventually lead to closed deals and a paycheck, it takes time. Unpaid time.
Reason #4: Trying to close every sale leads to unqualified clients and wasted time and effort for everybody.
When you only pay people for the business they bring in, your salespeople will try to bring in as much business as possible, no matter what.
But trying to close every lead isn’t a good practice.
We’ve talked before about how hunters are usually more damaging than helpful to a company.
The fulfillment side of your business typically has to do more work and spend more time on clients that aren’t a good fit. Plus, prospects can smell a needy salesperson from a mile away. That opens the door for prospects who might try to take advantage of the salesperson or the company.
Or, even worse, you get an unqualified client that you can’t help. And when you’re not able to meet their expectations or needs, your company can develop a bad reputation.
When a salesperson is only paid commission on the deals they close, they’re not really going to care very much about all of those issues. They need to get paid, and they’re pretty much forced to close every deal they can. And when the deal is closed, they will move on to the next one.
Reason #5: Having a commission-only pay structure means that your salespeople can only focus on closing sales and nothing else after that.
Let’s talk about service. I can’t think of a single B2B sales role where the relationship is completely severed at the time of sale. While the fulfillment side of the business may take over the bulk of the work after the deal is closed, the salesperson is often the point of contact. If nothing else, they usually at least spend a little time maintaining the relationship in case there are opportunities for upsells, new services/products, or referrals.
However, a commission-only sales rep is not incentivized to handle any service after the sale. They have to move on to the next one. That’s a huge problem these days where reviews are becoming more and more of a factor when clients are shopping.
Again, the best salespeople in the world kill it because they develop relationships with their prospects. They build trust with their clients by making sure they know that the deal only closes if it’s the best fit for both sides.
It’s really hard to get a salesperson to that point if you’re only paying them a commission.
I know I said that this structure sucks, but there are always exceptions.
For example, one person I spoke to has a commission-only structure for their salespeople. But they are fed leads all day every day, and it is a quick, transactional sale that ends as soon as the customer pays.
This pay structure works there. Nobody is really there for the long haul, and the company gets en enormous amount of leads.
It can also work when a sales rep makes a residual commission for the length of the relationship with a client. Most financial advisors are paid this way, and it’s very successful. That client/advisor bond has to be tight for it to work, so your advisors will work hard to uphold the values of the company and their clients’ trust. And most advisors own their book of business, which is another huge incentive for maintaining relationships.
But at the end of the day, exceptions aside, your salespeople deserve a salary. They’re the ones bringing in the clients and the money, and they deserve to be paid fairly for their time.
It’s not just about fairness, it’s also about keeping good salespeople. Paying salary versus commission typically reduces turnover.
If you’re scared of hiring bad salespeople, then it’s probably time to restructure your hiring and training process, not your pay structure.