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Sales Management Myths: Straight Commission

Copyright MMIII, by Dave Kahle

I had just hung up from a phone conversation with one of my clients. He was commiserating with me on the sorry state of his sales force. He had a group of seasoned, experienced salespeople, each of whom was making a good income on a 100% commission sales compensation plan. The problem was he couldn't get them to promote new products or seek new customers. They were content to stay within their comfort zones of established customers and familiar products.

That contentment is more typical than most of us are willing to admit. Many distributor sales managers and principals continue to strive under the myth that sales people are forever motivated to sell ever larger quantities. And we attribute much of that motivation to the 100% commission compensation plan.

Unfortunately, straight commission plans rarely motivate an established sales force to sell more!

The problem is that there is a bit of truth in the idea that 100% commission pay plans motivate sales people. Straight commission plans do encourage new salespeople to strive for greater sales. Until, that is, they reach a level of income at which they are comfortable. Then the incredible power of ingrained habit and the allure of comfort take over, and most of them plateau.

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And, straight commission programs do reward certain salespeople -- the top 5% of any workforce -- to continually press for greater levels of achievement. But these are salespeople who are driven by the need to achieve. They will seek higher levels of performance no matter what the compensation plan.

Having just identified the exceptions, I'm convinced that the rule is the problem. And the rule is this: For all but the new and the internally driven salespeople, straight commission plans merely reward the content sales person to maintain the status quo.

Upon a little reflection, you will probably agree with this. Just look around at your sales force. If you are paying them 100% commission, you'll have a significant majority of them who have become content and complacent at their income levels.

These 100% commission plans also generate certain other additional problems. There is the issue of "directability" for example. "Directability" is that characteristic of a sales force such that, when you give them a direction, they can be reliably counted on to follow it.

We, of course, expect ‘directability' in every other employee. Imagine a driver, for example, who, when you gave a direction to go to an account and pick up a return, nodded his head "yes," and then totally ignored your direction! I'm not sure that he would be around for long.

Or, imagine a purchasing manager, who, when you told him to bring in beginning inventory on a new line, nodded yes, and then never did it! Again, his job would clearly be in jeopardy.

Yet, we routinely allow our salespeople to ignore our direction. We have a product or a line that we want to promote, or a process that we expect of the sales force - like calling on new customers, for example - and yet a significant number of our salespeople can nod yes at the sales meeting, and then go off and ignore our direction.

The culprit, in addition to our lack of management guts, is the straight commission programs that we inherited from our predecessors. Pay a person 100% commission, and that person tends to think of himself as independent - an entrepreneur who runs his own business. Your direction is just a minor irritant to him. His real direction is to do that which brings him his comfortable commission checks.

There was a time when straight commission programs made a lot of sense. When you didn't care what your sales force sold, as long as they sold something, then straight commission programs were appropriate. But in today's world, what you sell is important.

You probably have lines that are strategically important to you. You may have made a commitment to a specific manufacturer or group of manufacturers. Or there may be lines that you want to promote because of changes in your market. Or, you may just want to sell more of what brings you the best gross profit. In any case, it's likely that you want your salespeople to sell more of something and less of something else. If that's the case, then straight commission is counter-productive. It rewards the sales person to sell more of what ever is easiest to sell.

Not only are there product lines which you probably want to promote more heavily than others, there are probably also customers that you want your salespeople to focus on, to the exclusion of other customers. You may have target accounts, high-potential segments or customers to whom you want to sell more. Straight commission programs, of course, reward the salesperson for selling anything to anyone. So, if there are customers you want to more deeply penetrate, your 100% pay plan will be counterproductive.

Straight commission is a vestige of days gone by. Much of the reason for that has to do with the sophistication of your IT system. There was a time when the only measurements all you could easily create were measurements of sales and gross profits.

It made sense, then, to use those measurements of sales and gross profits as a means of rewarding a salesperson. However, today's information systems are far more sophisticated, allowing the astute manager the option to measure sale behavior much more finely than just sales and gross profits.

Measurements of things like these are relatively common:

  • increase in the number of categories sold per account
  • increase in sales, gross profits and categories in key accounts
  • increase n the number of SKUs sold per category, per account.
With the ability to measure sales behavior much more finely, the prospect of rewarding sales behavior much more finely is now easily done and administered.

All of this leads us to an obvious conclusion. If you are currently paying your sales force on a 100% commission plan, it is time to examine some alternatives.

It's the unfortunate truth that, except for the five percenters of the world, straight commission is not the most desirable compensation strategy.
Dave Kahle has trained tens of thousands of B2B salespeople, sales managers and business owners to be more effective in the 21st Century economy. He's authored nine books, and presented in 47 states and seven countries. To access Dave's training, insights and tools online, visit The Sales Resource Center. Visit www.davekahle.com to check out a seminar near you.

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