How to Know Whether a 100 Percent Commission Approach Will Work for Your Salespeople

Overview

Commission can be a part of any pay structure, whether salary or hourly. But sometimes, commission is
the only pay structure, otherwise known as the 100% commission approach. Under this system, a salesperson is solely paid the commission she makes on a sale.

Like most things in life, this way of doing things has both pros and cons.

A Closer Look at the 100% Commission Approach

Many retailers find that offering only hourly pay doesn’t encourage their teams to be as productive as possible; the motivation simply isn’t there. So offering some type of commission is a common way to incentivize hard work.

With that in mind, offering only commission can be great in some cases and not as great in others. If salespeople are eager to go out and close deals, they might thrive in this way of doing things. For businesses, it can eliminate a lot of risk. If salespeople are successful, they increase revenue. If they aren't, no money is lost on their pay. More than that, proponents of this approach also say that it motivates sales reps to earn as much as possible and simultaneously indicates to the employer who is doing well and who isn't, so it becomes a performance marker, too.

But it's not perfect. Sometimes, salespeople struggle to know exactly which job and client will be the best fit for their personality, selling style and work experience. When this is the case, 100% commission is risky not only for the rep but also for the retailer. It can make it difficult to forecast expenses and stay within a budget.

If sales aren’t coming in, it means the company isn’t generating revenue and salespeople aren't earning commission. This can lead to too much turnover and general unhappiness among employees, which can, in turn, negatively impact the company culture.

None of this is to say, though, that the 100% commission model is bad — it’s anything but. Again, like most things in life, it just needs to be the right fit for those who adopt it if they want to see success.

So When Does It Work?

Research from Harvard professor Rajiv Lal and co-authors shows when and why the 100% commission approach is successful — and when and why it's not. The
group studied how the level of uncertainty in a company’s sales cycle influences the pay systems it has in place. Their findings show that the more uncertain the cycle is, the better it is for salespeople to receive fixed salary pay. In sales cycles that are more fixed, though, the pay can and should be oriented toward commission.

While some industries naturally lend themselves to more frequent, regular sales cycles, others face cycles that are longer and more complex. The shorter the cycle, the more chances salespeople have to engage with leads. If the sales cycle is more drawn-out, though, the 100% commission structure is a lot less likely to work for salespeople who, because of the very nature of what they're selling, might only make sales every few months or even every few years. In the commercial furniture space, a couple of months is considered a short cycle, so salespeople likely couldn't wait that long — or longer — for a paycheck.

So When Does It Work?

Knowing how this pay structure works as a whole, you can consider when this approach would make sense for you as a flooring retailer. While the payment structure in your business has to fit your specific needs, goals and people, the best environment for paying salespeople completely based on commission is one that’s steady and stable.

Why? Established businesses with strong infrastructures can give salespeople the tools they need to succeed. They already invest in their business, drive traffic and market themselves well. So if they also invest in finding salespeople who are willing to learn and work hard and who are highly skilled, both the business and the sales reps will reap the benefits.

Is It Right for You?

If you're considering putting this commission structure into practice, there are three things to determine first:

1. How money matters to you and your sales reps

Finances are clearly important to businesses, so knowing whether the 100% commission structure can work within your budget is critically important when deciding whether to adopt it. However, also keep in mind the needs of your sales team both at work and outside of it. If costs of living are astronomical where you are, consider whether having your sales reps rely solely on commission provides them with enough security. If not, they'll be more likely to look elsewhere for work.

2. What you'll give salespeople (and what you won’t)

This goes back to the logic that commission-only structures work best in established businesses because they have more resources to offer salespeople.

That said, if you want to pay just commission, be prepared to help them in other ways, like providing them with leads. If you leave the prospecting to them and expect them to make sales on only the prospects they can find, you're asking them to do all of the heavy lifting, which will not only overwhelm them but could also drive them away.

3. Training logistics

Finally, determine how you'll train your salespeople. Are you prepared with training materials that can show your new hires how to maximize their sales success? Do you have the resources to create these materials and sustain them? If you want salespeople to thrive in a complete commission structure, you have to prepare them to be the strongest they possibly can when they go into the field.

For established flooring retailers, adopting a 100% commission pay structure is an opportunity and not an obstacle because it can motivate sales reps to aim higher and secure more deals and eliminate financial risk for your business. Just make sure you take the time to think through whether the model is right for your flooring company and the salespeople who make it great — that will make all the difference.

Action Plan:

• Check out links within this article to gain additional insight.
• Engage peers on recommended commission structures to learn best practices.
• Evaluate current training methods (include sales team for more in-depth feedback),and make necessary adjustments to support your sales team.