Hi Dane, we’re considering hiring a salesperson. Do you have any advice as how we should pay them?
There are three main options for compensating salespeople:
Salary Only. A salary is a fixed amount of money that an employee is paid on a regular basis, such as weekly, or monthly. A salary is paid regardless of the amount of sales the person makes. This method is sometimes referred to as a flat salary because it does not include any selling incentives. Although a salary gives a salesperson a stable income, it does not provide motivation for selling a lot of product.
Commission Only. A commission is an amount paid based on the volume of products or services that a salesperson sells. Usually, a commission is a percentage of the total amount sold. Because a salesperson on straight commission only gets paid if he sells something, this approach is directly tied to work performances and results. A disadvantage of paying straight commission is the difficulty in attracting and keeping experienced salespeople. They know that budgeting finances can be difficult when sales can vary widely from month to month.
Base Salary Plus Commission. Most often, sales people are paid with a combination of salary and commission. The challenge is to find the proportional mix that works best for your company. The right balance will help motivate your sales staff to do their best.
Which one is best for you, will depend on a variety of factors specific to your business, but these three should give you something to go on.