When does commission only work well?

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Commission only jobs — especially within sales — are a complex topic on both sides of the employer-employee relationship. Principals tend to love them in a lot of different ways: if they get a high-performer, they are paying more, but that also means they are making more. If they have an average performer, commission only usually means the company is paying less — and not having to worry about a regular salary for someone who is only a little bit above decent at their job.

Let’s start with the employee (sales rep) side.

Commission Only On The Sales Rep Side

Here are some of the key benefits to commission only jobs:

  • Flexible schedule / ability to control your time
  • Your earnings are based on your drive, as opposed to waiting for annual promotions
  • Aside from market factors, your success is mostly about what you put into it

Of course, as with everything, there are cons as well. Most of these on the sales rep side revolve around money. Notably:

  • Your income goes up and down at different parts of the year
  • If you need to do lending/borrowing (home loan, etc.), banks might be skeptical
  • Your schedule is flexible but also unpredictable based on client need/availability

Most jobs — commission only and not commission only — are a trade-off between flexibility and stability. If you want flexibility, you typically have to give up some stability. If you want stability, you usually need to “work for the man” (as they say) and that reduces your flexibility. Determine which of these two you’re more comfortable with and you’ll know if commission only is right for you.

Commission Only On The Sales Organization Side

These are typically the situations in which commission only makes the most sense for a company:

  • Very short sales cycles
  • Established brands
  • Established markets and market position
  • More transactional sales
  • Less experienced sales staff needed

If you meet 4-5 of the above, commission only might be a good play for your organization.

Even though we’re writing this article, we tend to not deal with commission only principals. As we help SaaS and other vendors navigate the German market, we tend to deal with companies that meet these criteria:

  • Need new customer acquisition (as they’re in a new market!)
  • Longer sales cycle
  • Brands need to be developed
  • Products need to be differentiated and messages need to be developed
  • Complexity of new market
  • More established sales staff required

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In these contexts, commission only is a bad idea. It will alienate your sales team. It’s nearly impossible for them to make money as they build out new brands and products in a new market if they’re commission only.

These are the differences as we see them. What else have you encountered about commission only jobs?

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