Determine which pay plan works best for sales staff at your ISP—straight salary or commission, a combination of both—or would independent contractors suit your ISP business style?

by Brock Henderson Brock Henderson & Associates [June 24, 2002]

There are two key elements to keep in mind when it comes to building a compensation plan for your ISP business's sales staff. First, the better the wages you offer, the more talented your prospects will tend to be. Second, you absolutely must offer your sales representatives a decent wage so they can earn a decent living. Even though it's tempting to try and offer minimum wage plus commission, this means you are competing with Burger King and McDonald's for employees.

There are four ways you can pay your sales force:

1. Straight salary
2. Straight commission
3. Combination of salary and commission
4. Independent Contractor

Straight Salary: This is the simplest and most straightforward of any of the pay plans. You offer what you consider a fair salary and the individual either takes it or leaves it. However, "fair salary" is open to a wide range of interpretations—what you consider fair and what the prospect considers fair is usually very different. Don't be surprised if you have to pay dearly for a decent salesperson, but don't be put off by that either; after all they should be generating revenues far in excess of their wage.

Straight Commission: You might be thinking they should be paid straight commission, but in reality it is going to be exceptionally difficult to find someone who is willing to go into a straight commission sales job, especially for an ISP. In other industries most commission salespeople are working a base of businesses that re-order products and services on a regular basis, but in ISP sales it is go out and get a new Webhosting and/or dialup account and then move on to the next one. The opportunity for repeat sales isn't there.

The more emphasis you put on paying commission, the higher you need to make the commission rate. If you don't want to pay them much in the way of a commission then you better switch to straight salary or a combination of salary and commission.

It is important to understand that if you are paying straight commission or even a combination of salary with commission, a top flight salesperson may very well end up making more than anyone in the company … including you. Don't let this disturb you, if they are earning more than anyone in the company it should mean that the income they are generating for the company is more than supporting that big check they are getting.

Frankly, it is very difficult to find individuals willing to go the straight commission route in any industry. Straight commission is exceptionally scary, and it takes a lot of sales experience to understand the benefit of commission sales, and a lot of intestinal fortitude to pursue it.

There is a great deal of discussion between ISP owners as to whether a commission should be a one-time payment, or a perpetual payment for the life of the customer. For example, should it be a one-time payment of $10 or $1 every month the customer remains in good standing?

While a good case can be made for either method I would suggest a hybrid. For example, $5 as an initial payment, followed by six months at $1, followed by six months at $0.50. This spreads out your payments, which minimizes any impact on your cash flow, and allows the salesperson to build some residual income.

Combination of Salary and Commission: This is probably the most cost-effective route giving you the opportunity of paying a slightly smaller wage than you might under straight salary, yet holding out the prospect of greater financial rewards through commissions. Also, the commission rate under this arrangement will generally be smaller than if you were paying on a straight commission basis.

Independent Contractor: A lot of ISP owners seem to want to make their sales people Independent Contractors, the biggest points in favor of hiring Independent Contractors are:

• No FICA or unemployment to pay.
• No income tax withholding.
• No benefits to pay.

However the IRS, (see IRS publication 1779 for more information), has certain guidelines that determine who is and is not an Independent Contractor, these fall into the three broad categories:

Behavioral Control:
• You can't tell the individual how, when or where to work; • You can't tell the individual what tools to use;
•  You can't control where they purchase supplies from;
•  You can tell the individual what is to be done, but not how to •  do it; and,
•  You can't provide training on procedures or methods.

Financial Control:
• The individual has the opportunity for profit or loss;
•  You do not pay any taxes or insurance on the individual; and, • You do not reimburse the individual for expenses incurred.

Relationship of the Parties:
• You cannot pay them any benefits;
• Nor can they participate in any retirement program with you

Think of it this way—you have as much control over an Independent Contractor who is selling your ISP services as you do over a Contractor who is repairing your roof.

The best way to protect yourself is to have a contract drawn up that specifically states the terms and conditions of your relationship so that it is clear to both parties, as well as the IRS, that you both intend the relationship to be that of an Independent Contractor and not as an employee.

In closing, remember that appropriate compensation for your ISPs sales staff will depend on the economic conditions of your area. It's also a good idea to review compensation plans periodically, because what is right for your ISP business today might not be right for your business next year—or even next month.

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