Straight Commission vs. Salary

Before I get myself too deep into this controversial topic let me make it clear that I have been in sales for over 23 years at this point and for the vast majority of those years my compensation has been either 100% commission based or minimally supplemented by a base salary. I should also make it clear that for the most part I made a conscious choice rather than a forced (act of desperation) no option decision to accept positions that offered no base salary. Some people myself included have earned a tremendous income in commissioned sales and for those who aren't afraid of being in a career that is purely performance based it can be an excellent way to earn an income. As a matter of fact there are many straight commission income earners who make more annually than those who work in more admired and sought after professions. Having said all that, it is my desire to offer a balanced and personal opinion on both forms of remuneration.

Only a certain kind of individual will be open to the idea of being compensated purely on a commission basis. There is a degree of risk involved in even considering this as an option. If the candidate has no previous knowledge of the employer, the industry or the income earning potential then it can be very difficult for them to overcome their concerns and any skepticism that they may have regarding the position or the credibility of the company and it's products or services. Any individual who has a low level of personal belief in themselves or who is surrounded by peers, associates, family and friends who think negatively about the idea of commissioned sales will certainly have their decision swayed by this circle of influence. Unless they are desperate enough to take any job offer that comes along or they have a burning desire to break into a sales role then they will need to be provided with ample evidence in order to feel comfortable with making such a commitment. Even with such evidence their resistance may be too great for them to give the idea a second thought. Those individuals with an entrepreneurial spirit will tend to have a lower degree of resistance to considering a straight commission opportunity. Those who are open minded to the idea will focus their attention on gaining a full understanding of the opportunity, the company, it's leadership and the products and/or services to determine if the position is a good fit for their personal situation. They will look at the upside, they will search for the evidence that strongly supports their desire to prove that what they are considering is the right move. Unless they have been burned in the past they will be less concerned with certain aspects of the who, what, when, where, why and how.

The company offering the position obviously has their reasons for operating under this sort of business model and pay structure. Understanding why they have decided to renumerate people based on straight commission may be helpful in determining whether the risk is worth the potential reward for those considering a straight commission role. There are some businesses that have historically operated this way such as Insurance Sales or Real Estate Sales. Understanding that typically the single greatest expense in most operating budgets is payroll sometimes it's a matter of dollars and cents, the company just doesn't have deep enough pockets to carry the load until the revenues generated by sales surpasses the cost of carrying the salaries and expenses associated with securing business. They may even be attempting to grow their numbers too quickly without having the infrastructe in place to financially support their business goals and objectives.

All sales positions are performance based the ones previously listed are even more so impacted by performance. High performing, self disciplined people can make better than average incomes in these careers. People who know themselves and know that they need more structure and a support system that holds them accountable (their feet to the fire so to speak) won't (or at least shouldn"t) even consider this as an option. Companies that want or need a higher degree of control and accountability over their people and the results that they generate know that hiring straight commission income earners can be like contracting rogue gun slingers who dance to the beat of a different drum. As a personal observation I would say that the majority of people who are higly successful in a straight commission position are strong willed, confident individuals who don't like being told what to do, they don't like others forcing their will or expectations on them, they don't believe that anyone has the right to force them to show up for what they perceive to be unproductive and/or unnecessary meetings and generally speaking they want to be left alone to sell or do whatever they want with their time. In their mind the perspective is "You don't pay me for my time, I get paid when I generate results, therefore you don't own me and you certainly don't dictate my schedule." This attitude can be detrimental when the industry or selling enviroment depends on a team effort and/or involvement but in my opinion, who can blame them for feeling this way after all, they are "Independent" Contractors.

Taking this whole thought process one step further there is also a difference between making a decision to take on a straight commission role where you are either employed by the company or working on a contractual basis as an independent contractor. When the company provides some degree of perceived security or safety net by hiring you as an employee this can certainly increase your confidence in accepting the role. As an employee you may qualify for some advantages that make the move a little less risky. I am referring to potential benefits (i.e. dental coverage, medical coverage, certain insurances, etc.) and safety nets like disability coverages incase of health issues and once you qualify unemployment insurance benefits if something happens to the position or your ability to continue working. Depending on where you reside and the employment laws or any policies that the employer may have you may qualify for vacation pay, sick day pay and also leave pay (i.e. for maternity leave). In addition, as an employee the company may realize the need to provide new hires with some form of training allowance or a draw against commission to allow for ramp up time. Whether it be one week, one month, three months or more, some ramp up time is normally required before people begin to produce results that generate an income. If there is no form of training allowance or a draw against future earnings paid to new recruits during that time frame it makes it difficult if not impossible for them to cover their basic costs to survive never mind the costs associated with doing business. If the company also provides some form of allowance on either a temporary or permanent basis to cover "the costs of doing business" such as fuel consumption, communication (cell phone) etc. then at least, they have some skin in the game. Most people have fixed monthly expenses and they are operating at the threshold of their income based on what they are accustomed to earning. They also have little in the way of savings and therefore they don't have the personal finances required to bridge the gap between zero income and ramp up to a monthly commission that sustains the lifestyle that they are accustomed to. If they are just entering the workforce or they were between jobs for a period then their finances may be depleted so expecting them to use their own tools and vehicle without renumeration may be out of the question. Unless they happen to have a spouse, partner or some other family or friends that provide a support system to manage the household expenses on their own then this form of employment may be impossible for them to consider. When you take on a straight commission position as an independent contractor the risk is all yours. There can certainly be income tax advantages as a self employed individual and you may have more freedoms when it comes to taking time off for vacations or for other purposes. If the rewards are worth it or taking the risk is perceived as acceptable then this may not be an issue. A strong candidate will always weigh this out and if they can see there is big financial potential in the position then they will accept the risk.

Those high performing people, who have the potential for being better than average income earners are usually bright enough to ask some intelligent questions when evaluating any sales role. If they know their worth, value or have a clear mental picture of their desired annual income or income earning potential then they will ask enough questions regarding the position and all of the factors associated with how the money is made in order to determine if the fit is right for their needs and situation. They know that numbers don't lie so if the person they are meeting with to discuss the role is forthcoming with adequate information regarding what is conservatively possible then they can make an informed decision as to whether or not the fit is right for them. I am referring to information such as training time required (how long does it take before I can begin making sales calls?), selling cycle time (average time between first contact and commissions being paid), typical activites of the role (cold calls, meetings, presentations, etc.), how much activity (number of calls, visits, meetings etc.), average closing rate (how many sales appointments or presentations does it take to generate a sale), average sale or commission per sale, any hold backs on earnings, the average income of the top 20% of performers and how long it takes to get into that income range. They will ask what the company is going to do for them in terms of how they are going to support their efforts and what resources and people they are going to provide to make their transition easier and their tasks more streamlined and simplified. If there is a contract involved (which there normally will be) they will make sure they scrutinize the agreement so that it is very apparent how their needs will be met and in what ways the company is prepared to protect them and keep their best interests in mind. They know that if person doing the interviewing has this information readily available and is willing to share it and even provide evidence then the role is viable and worth genuine consideration. If however, they feel that the information provided isn't genuine, that at best it is guesswork or a shot in the dark or a fabricated stretch of the imagination then alarm bells will sound and the position will move off their radar.

Typically there is a clear difference in the interview for these two forms of payment. Companies that offer salaries plus will be much more selective in their recruitment process. The higher the base pay is the more specific they will be with the skill base, experience and core competences that the ideal candidate must possess. When interviewing for this kind of role you are more likely to be placed in a position that you must convince and influence the interviewer that you are well suited for and more deserving of the job. The degree of concern when recruiting people on a straight commission basis can vary from none (we hire anyone with a pulse) to a more selective criteria based on the position and how complex and advance it is. With a straight commission position there may be some degree of convincing necessary for the candidate or the interviewer may focus all of their time selling the candidate on the role, the company and the products and/or services sold. When people are recruiting for straight commission sales positions the candidate needs to avoid getting caught up in any hype or a sales pitch and determine if they can trust the interviewer based on whether they feel they are holding back, covering up or glossing over certain information and ultimately if they are being transparent enough.

I am not opposed to earning a straight commission income I have done it for years. My recommendation to anyone who is considering this as an option is as follows; don't sell yourself short this might be an excellent option for you, be careful if you have financial and other responsibilies to consider, if you are adverse to risk then this is not likely your cup of tea, don't be swayed by people who don't work in sales or business, get the facts by asking lots of questions about how the money is earned and what your conservative expectations should be, be honest about who you are and your level of personal motivation, how much you worry (in general, your emotional stability), ask if you can speak with some of the people working at the company who have been there longer than one year and are doing well financially and lastly trust your gut instinct after doing a thorough evaluation because if it feels right or it feels wrong then you're best served to listen to your inner voice.

Marshall W. Northcott

Your comments, questions, feedback and additional insights are appreciated! Please take a moment to add your thoughts and feelings in the comment section below and if you would like me to respond please include your contact information.