Q: I'm
hiring a salesperson for the first time in my home-based business. I
would like some advice
about how to compensate them. Could I pay straight commission (which
is obviously better for me) or will they want a salary?
A: This decision will, to some degree, depend on the
personality of the person you hire. Some very good salespeople
prefer the increased income potential of straight commission. Others
prefer a combination of draw and commission. But keep in mind that
most sales reps require the challenge of a commission in order to
stay motivated.
You will also have to consider the sales cycle
for your business. For example, a product that is only purchased
once a year, at the same time by every client, would make a 100
percent commission arrangement unfair to your sales rep, since
commission would only be paid once a year. And of course, you'll
need to decide whether to pay commissions when the business is
written or when the client pays.
Commission structures vary, depending on your
industry. However, generally, the higher the draw (or salary),
the lower the commission percentage and the lower the draw, the
higher the commission. You should find out what is the norm for your
industry in order to be competitive in attracting good people.
Types of commission structures include draw
against commission, guaranteed draw against commission, and 100
percent commission with no draw.
When you pay your sales rep a draw against
future commissions, he or she receives a weekly or bi-weekly sum,
that is deducted from the commission check when a sale is written.
If the rep doesn't sell enough to cover the draw in any month,
then you can withhold future commissions until the draw for the
previous month has been entirely paid back.
If you guarantee a draw against commission, the
rep receives a regular salary, whether sales or made or not. The rep
makes additional money only after they have covered their guaranteed
salary.
Under the third arrangement, you would pay your
sales rep only on the percentage of the sales made. This structure
obviously would pay a higher commission rate due to the fact that
there is no salary or draw.
You might also consider an incentive program.
If your sales rep continually exceeds your sales quotas, they
deserve a reward. Whether it's an extra $100 or a gift
certificate, this is a great way to say, "Keep up the good work."
