On this episode, Paul lays out his argument for a straight commission compensation plan.
“The more variable your pay, ….”
“Your compensation plan is your best accountability tool.”
When you are paid straight commission, you have ….”
Put yourself in a position where you have to be successful.
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Which is better, commission or salary?
(Transcribed from podcast)
I had a great conversation the other day with a brand new salesperson, fresh out of college. What a time to be entering the workforce right now. I mean, isn’t that unbelievable. But anyway, this salesperson had a great question. The question was “Paul, I got two offers here. One is with a higher salary but lower variable pay—meaning, I’m basically going to make a base salary with a little bit of bonus. There’s this other sales job where it’s straight commission where I get absolutely no salary.” And he was asking me, “Which one would you take? Which one’s better?” That’s what we’re going to focus on in today’s show: Which is better, straight commission or big salary?
Before we get into that question though, a quick shout-out to Andrea over at The Creative Impostor Studios. Podcasting is the way to connect with your audience. It’s the new thing in marketing. It’s a way to develop your brand. It’s a way to get your thoughts out there and ideas. So, if you’ve ever considered a podcast or you’re thinking of starting one, you have an idea of one, hey, reach out to Andrea and her team. They can help you. She can get you started. There’s going to be a link to her website on this episode’s webpage. So, check it out.
Also, hey, if you’re in commission sales, if you’re in salary sales, whatever, pick up your copy of Value-Added Selling. It’s going to help you be more successful regardless of how you get paid.
But let’s get to that question: Which is better, commission or salary? Now, most companies I work with, they’re getting a little bit of both. However, there are several clients of mine that do pay straight commission, and there are some of my clients who pay their salespeople straight salary. So, we’re going to talk about some of the facts and the advantages of both, and then I’m going to share my thoughts and ideas.
Number one: with a straight salary type of sales role, where you have maybe some opportunity for bonus here and there, there’s a couple of advantages there. Number one, you get a predictable salary. That’s great. Who doesn’t like that. Number two, it gives you an opportunity to learn the industry. If you are in a brand new industry and they’re going to pay you a salary for a year or two just to get your feet wet so you can understand everything; you can take the time to learn, I think that’s great too. Good stuff. That’s what salary will do. It gives us that comfortability. It gives us a chance to learn.
Now, a salary also gives the employer more control. If you’re a sales manager or business owner, if you’re listening to this, if you’re paying your salespeople with a salary, you get to dictate how they’re going to spend their time because they’re working for you. You’re paying them a salary to go out there and sell. It gives you more control.
Now, if you’re a salesperson listening to this, realize that when you are paid a higher salary, your employer is going to have more control over what you can do. They can tell you, “Hey, you need to, you need to take half a day and update your CRM,” and you have to do it because they’re the one paying you.
If you’re in a straight commission role, it’s a little bit different. You have a little more freedom in what you do. Now I know there’s advantages to both, especially if you are a new salesperson getting into a new industry. Hey, that salary might look appealing at first, but here’s a couple things to consider. The more variable your pay, the harder you are going to work and the faster you are going to learn. That’s one of the reasons I love a straight commission program. And by the way, I think every sales position should be straight commission. That’s my opinion. That’s the world according to Paul. But you should have to go out there and hunt and kill exactly everything that you eat. And primarily because of the first reason that I mentioned—the more variable your pay, the harder you are going to work. If you have to wake up every morning realizing that you’re unemployed until you make that first sale, you’re going to wake up a little bit earlier; you’re going to work a little bit harder. Your compensation plan as a straight commission salesperson, that is your best accountability tool.
Another reason why I think straight commission is the best program, it puts you in a position where success is your only option. I’m a big fan of that. Throughout my entire career with other salespeople that I’ve interacted with, they put themselves in a position where they have to be successful. And not taking a salary means you’ve got to go out there and sell something. You’ve got to produce results. And the pain you feel, the struggles that you face early on, those gaps in compensation where you’re maybe not making any money for a couple/few months, that’s going to light a fire. That’s going to motivate you to want to learn, to improve, to get better. So, put yourself in a position where you have to be successful.
Now, another thing to think about, and I mentioned this earlier, the more variable your pay, the more control you have as a salesperson. When you are paid straight commission, you pretty much get to approach your territory, your business, the way you want to approach it. That’s what my experience has taught me. In working with organizations that pay their salespeople a straight commission, they don’t really dictate to them what they have to do day to day. They basically give them some targets and say, “Go out there and hit it.”
Now, sure, occasionally they’ve got to do some company things. They’ve got to take care of some non-sales related activities. But when you are paid straight commission, you have more control. You have more say over what you do. And one final thing to think about, again, the merits of a straight commission type of sales job: when I think about some of the most financially successful people that I know—including salespeople, realtors, financial advisors, sales managers, business owners—when I think about the most financially successful people that I know, they didn’t get to that point by earning a salary. It was through variable pay. It was through them hitting their bonus, hitting their monthly targets, building a successful business, bringing on new clients. That’s how they became financially successful.
So again, for me, it’s going to be straight commission all day long. I believe that is the absolute best compensation plan that is out there. Challenge me if you think I’m wrong, but that’s the way to go. I’ll agree, yeah, there’s some benefits to offering a salary to help get people started, to give them some predictability. But the sooner you can put them in a position where they have to be successful, they’re going to be successful.
Make it a big day.