Commissions: Pros and Cons

CommissionsThe debate on whether paying your sales agents commissions is good for your company or not has seen a lot of heated and passionate discussions over time. There are parties who are strictly opposed to the idea of paying commissions, and there are parties who are strictly pro-commissions.

But should there really be a hard line between the two?

Let’s review an example cited by another blog called “The View from Madison Avenue” and an article written in April 2013. Author Paul Gumbinner cited the following example for the debate “I can think of one case where a business development person brought in an account which generated a quarterly commission check of close to $60,000, payable for two years; this was on top of a fairly high base.  This made him one of the highest paid executives in his company. Someone from the holding company reviewed the payroll and his checks stood out like a sore thumb.  As a result, his employer unilaterally changed his deal, which, in effect lowered his commissions going forward.  His choice was to take it or leave it.  He took it because he wanted his commission checks, but it left a very bitter taste in his mouth.”

Now let’s look at the two sides of the sales commission coin.

Cons

  1. Stress on Sales People. Badly designed sales commission programs usually involve meeting quotas that are quite a stretch. This puts undue stress on the sales people. Stress can result in two things: Motivation & Desperation. More often than not, steep quotas cause desperation in employees (especially when they’re worried about their bills) and desperation in closing sales is a rather big turn-off that potential prospects feel.
  2. Smaller Clients Can Get Ignored. Depending on the quota, sales reps might completely ignore the smaller potential clients and go for the bigger fish. Or, they can completely ignore the bigger fish and go after all the smaller clients that could easily translate into sales – albeit smaller sales. Either way, there’s a possibility that the company can lose some good quality clients.
  3. Fierce Competition. Let’s face it. Companies don’t have an infinite list of potential clients. This means sales people have to compete against each other in order to close a deal. But then again, competition can be a good thing, so long as the potential or new clients don’t get any back lash because of it.

Pros

  1. Good Motivation. Properly designed sales commission programs can motivate your sales people into giving stellar performances for the company. If sales people are properly motivated, they can go the extra mile to nurture leads and close sales, while taking care of the customer at the same time. This, in turn, usually becomes the beginning of a good relationship between the client and the company.
  2. Good for the Company. When commissions are tied with the sales that sales people produce, the company is ensured enough funds for the employees’ salaries. It helps ease the pressure of generating additional funds that the company can use, without having to rely solely on the capital.
  3. It Helps Build Trust. Commissions that are accurately computed and paid on a timely basis build the sales people’s trust and can be a good motivator. Likewise, timely rewards (in this case, timely payment of commissions), help encourage sales people to do a repeat of their stellar performance. CellarStone has many tools such as Easy-Commission and QCommission that companies can use to ensure that sales people are paid accurately and on time. Click on this link to find out more about CellarStone’s many different products.

For small to medium size businesses, the company usually can’t afford larger salaries to develop new clients so they opt instead to pay smaller salaries with higher upsides in commissions.  Larger companies generate a strong pipeline of opportunities so picking a policy of higher salaries with performance bonuses makes more sense.  Regardless, the business owners can’t play with sales commissions like a yoyo and change plans when it suites them.  It is about the integrity of the business that all employees rely on to do their best.

Those are just some of the effects that sales commissions can have on your company and your sales reps. At the end of the day, it should really be all about both the company and the employees’ welfare. After all, employees are a company’s greatest asset.

dmpgutierrez@gmail.com'

Dianne Gutierrez

Marketing Assistant at Cellarstone
Dianne is a travel & lifestyle blogger (for her personal blog). In the corporate world, she's a marketing assistant, content writer, and a social media manager for CellarStone.

She has a bachelor's degree in Psychology and she's a strong believer in the powers of positive reinforcement as well as work-life balance.
dmpgutierrez@gmail.com'

Leave a Reply