There are numerous ways to get paid today for your hard work. Some people earn an hourly wage. A salaried position is very common. Others work on a contracted rate. For salespeople, however, working on straight commission is one of the most common ways to earn a paycheck. If you want to earn what you believe you’re really worth, then a straight commission arrangement could be your best solution. This type of paycheck does have certain risks, however, which is why evaluating these key pros and cons of straight commission is so important.
Here Are the Pros of Straight Commission
1. Your earning potential is unlimited.
Your paycheck is based on a specific percentage of the sales that you are able to generate. This means you can always keep earning more money if you’re willing to put in some extra hours of work. Straight commission employees are never capped.
2. Employees know exactly what they can earn for every sale.
Because the commissions are published up front, salespeople know what they can earn from any potential sale. This often encourages salespeople to include natural upsells which helps their paycheck and the company’s bottom line at the same time. A bigger contract equals a better paycheck.
3. Community marketing happens naturally.
Salespeople are out in the community every day speaking with prospects. This is the perfect opportunity to brand employees through uniforms, vehicles, or both to increase recognition within a community. When salespeople are associated with goods deeds and your brand gets exposure, a positive experience can be obtained even if a sale isn’t made so that more prospects are created.
4. It naturally encourages people to work hard.
If you don’t work, then you don’t get paid under this type of paycheck structure. Because people need to convert sales in order to receive a paycheck, there is a natural structure in place that encourages hard work. Some salespeople might work harder than others, but eventually the chaff gets separated from the wheat and an agency is left with the best workers who want to be there and earn a living.
Here Are the Cons of Straight Commission
1. Payment is only made when a sale is confirmed.
Managers don’t have to pay a straight commission until they have a confirmed sale in their hands. This means a salesperson could work for hours to bring in a prospect, get a verbal commitment from them, and then have them back out at the last second to create a non-sale. If a sale goes bad and the commission was paid prematurely, it will often be reversed in the next paycheck.
2. It takes time to build up to livable wages.
Any type of sales employment takes time to get established. This is even true for salespeople who are inheriting a strong inside sales position. Prospects will only buy things from people that they trust and establishing trust takes time. For this reason, many people can’t afford to take a job on straight commission, even with the unlimited earning cap, because they need money for basic essentials right away.
3. There are agency costs which happen even when sales don’t get made.
Salespeople need to make phone calls, take prospects out to lunch, send out letters, print contracts, and maybe even have access to a CRM to be fully productive. These are all costs that happen whether a sale happens or doesn’t happen. It is very possible for an agency to lose money before it is able to make money. If no sales happen, then a bankruptcy is likely at some point in the future.
4. People must have a certain set of skills in order to be successful.
One of the biggest upfront expenses that occur with a straight commission structure is employee training. A specific skill set that includes approaching people and closing a sale is necessary for both the agency and the employee to find success. It is not uncommon for salespeople to go through two weeks or more of paid training. If an employee decides to leave right away, that’s a cost that hurts the bottom line of the agency.
The pros and cons of straight commission can be mutually beneficial for the employee and the agency, but it requires a certain type of person to work this way. The possibility of unlimited earnings may not be enough to offset the fact that there may be some paychecks that are worth $0. That’s why selecting the best candidates up front for this type of working environment is so essential.