Sales commission or salary: The conudrum

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in some fields, such as real estate sales, there seems to be only one answer: pure commission. But this option isn't universal within the architectural, engineering and construction community
in some fields, such as real estate sales, there seems to be only one answer: pure commission. However, this option isn’t universal within the architectural, engineering and construction community

Residential contracting consultant Michael Stone has never wavered in his belief (and advocacy) that residential contractors should employ sales representatives who work on pure commission.

In a recent blog posting, he takes shots at a successful contractor who disagrees — answering all of the contractor’s points in favour of a salary guarantee and why pure commission sales is both unfair and ineffective, both for the consumer and representative.

The contractor says:

Commission salespeople do not know how to treat people. They see customers as ‘marks’ (like in a carnival side-show) or simply as credit cards with legs. I do not hire sales people in my stores based on commission only. They get a good wage and performance bonuses four times a year. I would stack the sales ability of my people up against any fast talking commission sales person any day. Believe my business plan has paid off, for me, my employees and, most important my customers.

Stone replies:

I wouldn’t work for any company with this pay schedule. They are in effect trying to control how much money their salespeople can make. I’d also like to point out that when they pay a performance bonus, they are paying a commission. I hope the performance bonus is based on each individual’s performance, not on the collective performance of all salespeople.

The truth is that the writer isn’t dealing with commission issues; he is dealing with character issues. If an owner or sales manager sets a good example and insists their salespeople follow that example, they won’t have a problem with unethical salespeople. The company, the sales staff, and the clients will all win.

So who is right?

I wish I had a good answer and fear that, in practice, I waffle in the middle (perhaps not really getting it right either way.) We’ve applied pure commission and salary base models over the course of this business’s history, through good times and hard, and the conclusion I’ve reached is that a salary or income guarantee model may be important or effective for longer sales cycles but these can be badly abused and result in serious and painful cash flow problems and even ethical misbehaviour.

Conversely, a pure commission model can result in serious abuse, ethical misbehaviour and control/business management problems as the sales force resists any sort of “management” of their work.

And if you try a hybrid program, you’ll probably find the best or worst of both options, sometimes at the same time.

These challenges, I think, are magnified in the professional services world, where the most successful current practice suggests that owners and decision-makers want to work with rainmakers, or seller-doers — that is individuals with the relevant professional qualifications. And you don’t get to be a professional engineer or architect by taking a four-week sales training course.

How do you recruit and pay these qualified, talented individuals? Probably you won’t find many willing to jump ship unless they can have both a significant salary/income base guarantee, plus performance bonus and equity potential/interest in the business/practice. After all, a rainmaker in a professional service capacity usually is quite capable of starting his or her own business or practice.

conundrum definition
Conundrum defined

Right now, we’re trending in the commission-only direction, with intriguing recruiting and business management/productivity challenges. However, regardless of the model, I can confidently assert that if your sales costs are greater than the level that you would budget for commission (within industry norms) you will have troubles; and if you cannot find/recruit or lead an effective sales or business development team because your compensation and marketing lead-provision isn’t great enough, you’ll have major business problems.

It’s a conundrum.

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