Compensating A Sales Rep
by Wendy Priesnitz

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."


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