No one ever said the life of a sales person was easy. And neither is the decision of the type of contract to put in place for one. From our journeying around cyber space we’ve noticed one of the common challenges when it comes to hiring a sales person is how they get paid – salary only, or salary plus commission.
To this end, we’ve researched the thoughts around the benefits and pitfalls of both alternatives. And of course, if you’re looking to recruit talented sales professionals that are a fit for your company and growth goals, look no further than our sales recruitment service.
Advantages of Salary Plus Commission
Some common advantages of offering the package of a salary plus commission arrangement for your sales candidates from the viewpoint of the candidate are as follows:
• Perhaps the most obvious benefit is security – the candidate knows their bills will be paid even if they have a poor month.
• Stability – offering a salary can be indicative that you want your salesperson to stick around your company for a long time.
• Typically, you might offer them more training which can not only help you excel in your current positions, but may also help in future positions.
• Eyes on Sales also wrote that the majority of salaried sales positions provide some sort of expense reimbursement, usually mileage and phone at a minimum.
• Other benefits such as health insurance are more likely to be offered too.
Disadvantages of Salary Plus Commission
Some common disadvantages of offering a package of a salary plus commission arrangement for your sales candidates from the viewpoint of the candidate are as follows:
• Reduced commissions – the article talks of a commission only job where the rate was 17%, vs. a base + commission job where the rate was just 2%. One insight of particular interest from the article is below:
“Employers decide upon how much money you should make at 100% of quota, subtract your base salary and the cost of benefits and payroll taxes, and whatever is leftover becomes your total targeted commission. However, if your base salary is rather large, a low commission rate may not be an issue after all.”
• Less freedom as the candidate effectively becomes employed, rather than self-employed.
• Less competitiveness as they are getting a base salary.
• Higher taxes (elaborated below).
Advantages of Straight Commission
Some common advantages of offering a package of just commission are:
• Higher overall opportunity to earn more.
• More freedom to do what they want, when and where they want.
• Lower taxes – if the candidate consults with a good accountant, being commission only can work in their favour.
Disadvantages of Straight Commission
Some common disadvantages of offering a package of just commission are below:
• No financial guarantees – this has to be the biggest drawback, there is a lot more pressure to achieve.
• Too much freedom in the sense that some may struggle to self motivate and self discipline themselves.
• Higher expenses as you may not be reimbursed for mileage.
• More government regulation as staff will have to file their income.
• Questionable security – they can leave when they want, but your organisation can terminate them when they want to also.
We can’t take credit for thinking of these ourselves, these points were taken from Frank Rumbauskas on Eyes on Sales. You can read the full article here.
From an employer perspective and to conclude, there are advantages and disadvantages to both methods of employment. Should you be looking for a long term hire, perhaps a salaried option is best, and it will make hiring swifter for you too.