Sep 29

The Benefits of Commission vs Salary

SalariesThe Benefits of Commission vs Salary

Many distributors across the nation are seeking to hire employees as a result of the increase in activity in the commercial construction industry.  One glance at the classified section of Doors & Hardware Magazine confirms that there are a lot of opportunities out there.

It is refreshing to know that distributors are busy and for the first time in a while have a backlog that makes them feel comfortable enough to consider hiring.

But we all know that the decision to hire is only the first of many decisions to be made when bringing on a new employee.

One topic that often comes up when discussing hiring a sales professional is compensation structure. Our industry offers a  wide array of possibilities, each with its pros and cons.

  • Hourly Wage
  • Salary
  • Base Salary plus Commission
  • Straight Commission
  • Commission can be based on smaller percentage of gross sales or larger percentage based on net profit.
  • A tiered structure where commission percentage grows as goals are achieved.

Before continuing with the payment structure that you’ve always used, take some time and research other options.  You may decide another system fits your needs more efficiently or find a way to tweak the system you have.  The ultimate goal is a satisfied, motivated employee.

Here are some articles that I found that may help when you are considering your options:

HOW CAN I GET YOU TO SELL…Have you been frustrated by under-motivated salespeople who are paid a handsome salary for selling to legacy clients and maintaining easy business?Or are you being plagued by turnover issues based on no one being able to “make it” on commission only?

THE ADVANTAGES OF PAYING COMMISSION VS SALARY When you are deciding how to pay your employees, you should consider the benefits of paying by commission versus the benefits of salaried pay. There are advantages to both options for the employee as well as the employer. Consider all the possible advantages when you develop a payment scheme for your employees.

BLOOMBERG BUSINESS WEEK: BEST WAYS TO PAY YOUR EMPLOYEES A base salary should cover reps’ basic living expenses (rent and food, not lease payments on a fancy car), or a minimum of $1,500 to $2,000 a month. “The reason you offer base pay is not to make people hungry,” Bremen says. “It’s to help them manage cash flow.” If you can’t pay that much, don’t bother paying a base.

After getting past the initial fear of a commission only payment structure, statistics show most motivated sales persons prefer a commission only or salary plus commission system at the least.  I would think as an employer you would get a more engaged employee. This system also ensures that the employee helps to shoulder the weight of the employee expense, in literally earning their income.

I hope this helps you in your decision making.  And remember even though it may be a difficult decision it is a much brighter predicament than facing layoffs! I’d love to hear your opinions on commission vs salary, chime in on the comment section below.

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