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Members of the ISP-Webhosting list discuss pay scales for salespeople. Managers need to set specific sales goals, determine how much of each sale is paid to salespeople, and make sure that each employee understands the payment system.

[August 6, 2001]

On the ISP-Webhosting list in July, DO asked,

"I am considering hiring salespeople on a commission-only basis. Can anyone give me any pros and cons to this?"

A number of respondents suggested that a quota would keep things on track:

[GW offered] "Generally the only way you can do this is to have a quota set up, like $3,000 a month of sales. Of that, the sales person gets 60-85%, depending on your market. If you do it this way, you must give them some time to fill up their pipeline. Also, you will need to pay them a commission for the first three months as if they are making those sales, as they ramp up.

[PP countered] "$36,000 per year in new sales per salesperson would be nothing. Our goal is $50,000 per person. A local competitor is pulling in $50,000 to $150,000 per month per person."

WW noted that it's crucial that the salesperson is handled correctly as an independent contractor:

"Just make sure you treat them as independent businessmen in every way, requiring a local business license, etc. If in any way they are treated as employees, the IRS can deny the independent contractor status completely, and then you are on the hook for workers comp, payroll taxes, unemployment, etc. Nolo Press has some great information on this at www.nolopress.com/category/ic_home.html."

PP suggested that, with the right rules, a commission-only setup can work:

"We have had salespeople on 100% commission. They had a low base from which to draw, meaning they could borrow against future commissions and pay it back to the company. Salespeople's commissions are 15% of gross margin; the marketing director gets a 5% override on commissions, and the sales manager a 5% override—so 25% of gross margin is set aside for sales and marketing payouts.

We pay out when the money is received; that way, we don't have any situations where a commission is paid out and the customer never pays. It is extremely important that your salespeople understand how they get paid: all salespeople must not only read and sign their employee handbook, but also must read and sign a sales handbook that goes over what is expected from them and how they will be paid. Furthermore, they sign a separate document that just explains how they will be paid.

Lastly, you should have a policy on how commissions are split if more than one salesperson is involved, or if one salesperson sells to another salesperson's account. You should also count the company as having an account, and all existing customers prior to the hiring of any salesperson should be considered part of the company account—you may have to split commissions between the company and the salespeople."

Others took the kinder, gentler view:

[FA observed] "Make the pay package realistic; can they make a living? If you pay part-time, you get part-time effort. If you want a young, free, 'work for nothing' type, you might get lucky, but more than likely it will be someone who goes from sales job to sales job and isn't a very good salesperson."

[AS agreed] "Offer a small base, $20,000 to $30,000, with a stiff quota and a very low tolerance for not making that quota. Give them additional marketing responsibilities if necessary to justify the cost."

[EB added] "No matter how depressed the current labor market may be, you will never get top quality people to work commission only. You would do far better to offer a living wage with benefits."

— End

 

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