When does commission-only work (and when does it fall apart)?

When does commission-only work (and when does it fall apart)?

We’ve covered this topic a bit before, but wanted to refresh the idea. Actually, one of our colleagues just got a call about a sales job in the United States. They were offering $36,000 base to start for 90 days training, with an increase to $45,000 after the 90 days training was over, and then commission kicks in. The job would basically be selling recruiting-type software to companies and even staffing agencies. The person who approached our friend said “There’s a chance to make up to $60,000 in commission.” Cool! Ultimately our friend didn’t take it because they were pretty stringent on being in-office (why for a sales job?) and the commute would have been dreadful. But it re-upped the conversation in our minds: When does commission-only make the most sense?

When commission-only tends to work best

  • Low-ticket offers
  • Very short sales cycles
  • Established brands
  • Established markets and market position
  • More transactional sales
  • Less experienced sales staff

In the case of our friend above, for example, the software wasn’t a low-ticket offer (Strike 1), the sales cycle is not that short for recruiting tools (Strike 2), and honestly, it wasn’t that established of a brand. For the salesperson in that context, commision is not a great play. (Admittedly recruiting technology is an established market, and our friend would have been less experienced in sales, but there’s too many strikes in this situation.)

When commision-only does NOT work well

  • High-ticket offers
  • You need new customer acquisition (you’re in a new market)
  • Longer sales cycles
  • The brand still needs to be developed
  • Products need to be differentiated 
  • Messages need to be developed
  • Messages need to be market-tested
  • There is some complexity to the fact that it’s a new market
  • Experienced sales staff required

Basically, in short? If you are entering a new space and need to test your concepts and message and product-market fit, and there’s increasing complexity around who to target and how to target them, do not use a commission-only model. You won’t find people or agencies who can do the legwork that needs to be done in these situations on commission-only.

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What do we tend to work on?

The second set of company bullet points — more complex market-entry situations. As a result, we work in a space where commission-only is a bad play for us. That’s why we work with clients on a monthly model of different services.

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