Draw Against Commission Pros And Cons

Pros and Cons of Popular Sales Compensation Structures

It's time to grow your sales team and, as a manager, this means you've got a lot on your plate.

Not only do you have the hiring and on-boarding processes to plan, but before you even get to that point you'll have to figure out exactly what it is you are looking for.

Sounds easy enough, but when you consider the importance of your decision, you are probably asking yourself many of the following questions:

Do I want to hire entry-level reps or those with more experience?
What's my budget?
What are my expectations from a performance standpoint?

On c e you answer these basics, the next important decision you'll make is which sales compensation plan to roll with.

How you pay your employees will have a large impact on the different type of applicants you'll attractCLICK TO TWEETIt's worth taking the time to explore all your options.

Sales Compensation Points to Consider

When it comes to compensation, of course you want to offer incentives that inspire the ultimate amount of drive from your new hires, but you also want to offer competitive compensation that will keep your top sales people loyal to you for years to come.

As a rule of thumb, salary based compensation inspires loyalty whereas commission inspires hard selling, go-getter sales types.

Are you starting to feel the pressure?

Luckily there are several different options available to fulfill your needs and goals while keeping your CFO happy.

Basically, you have 3 main options (salary, commission-only or salary and commission combo) with several off shoots.

Each naturally will have its own pros and cons, but ultimately you need to look at your needs, budget and goals for the future to determine which is best for you.

Also, keep in mind -the longer your sales cycle, the harder it will me to find employees willing to…CLICK TO TWEET

Salary Only

This is the most straightforward payment option. You decide upon a salary during the hiring process and that's the amount the employee can expect to make each year. This includes a contract that can't be changed unless it is renegotiated. All details are laid out ahead of time and you basically run on autopilot.

Pros:
*Your budget is set and you there are no surprise expenses.
*You are likely to retain employees longer than you would with a strictly commission-based layout if sales hit a slump.
*You'll draw a more loyal group of employees.
*Compensation isn't based on performance so your employees will have a baseline to plan around each month and therefore have a sense of security.

Cons:
*Without the pressure to make a commission-based salary, there may be less motivation to sell.
*Depending on your sales flow, your employees may realize that more money could be made elsewhere at a company that does offer commission.
*Poor performers are making the same baseline as those who have their nose to the grindstone, leading to resentment between co-workers and a potentially hostile environment.
*Over time, complacency often takes over.

Salary Plus Bonus

For employees who are looking for a reliable payment structure, the salary plus bonus payment is just that. In this structure, the employee receives the agreed upon annual salary with the understanding that at predetermined intervals, a performance-based bonus will be give if certain goals are met or surpassed.

Pros:
*Gives you a baseline sales budget to work from.
*Brings motivated and experienced applicants your way.
*Employees will push harder to meet goals since there's a monetary motivation.
*As a manager, you have the ability to place a greater demand on not strictly sales-based aspects of the job.

Cons:
*Employees may look elsewhere over time if they feel that their earnings are still somewhat capped.
*Salary may not meet the needs of everyone since it is lowered to allow room for bonus pay.

Commission-Only

The straight commission payment structure provides no base salary for employees. Compensation results from a portion of each sale they close.

Pros:
*Your employees will be highly motivated to sell.
*Your company pays solely based on performance so this will likely lead poor performers to seek out a salary job elsewhere.
*With essentially no cap to income, your top sales people are likely to remain content with your company and stay with you for a longer period of time.

Cons:
*Without an idea of your exact compensation structure, you will lose control over expenses.
*Often non-sales resulting tasks are neglected, making it difficult to get reports, follow-up and account maintenance done correctly.
*Your employees may become "cut-throat" and take on questionable tactics to convert a sale.

Base Plus Commission/Salary Plus Commission

In most sales environments, you will see this form of compensation. It's popular since it offers you some of the best of both worlds. Unlike the bonus and salary combo discussed earlier, this option allows you to pay a set salary to the employee but also offer commission based on closed sales.

Pros:
*You combine the stability of a solid salary and also motivate your team to push harder to close sales.
*The more you offer in the way of compensation, the higher the level of sales people you will attract.

Cons:
*Your employees may be put off by the fact that your commission rate is likely lower than those offered in commission–only opportunities.

Draw Against Commission

In this commission based plan, employees are given a specific amount in advance and this is deducted from the commission offered for each sale. You will often hear this called a "pre-determined draw."

Essentially, this offers your employees the benefit of being able to rely on a certain amount of income, but also pushes them to sell beyond what is advanced so they can make more profit.

Pros:
*employees are generally happy starting with a specific amount of income
*You are motivating your employees to sell, sell, sell while offering some level of stability.
*This platform often helps retain employment.

Cons:
*If your employee does not sell enough to cover this draw, they will actually owe you money. This leads to poor work morale and lower the desire to sell when known is viewed as their profit.
*Depending on the performance of your employee, you may soon find your company is falling behind by offering the draw in the first place.

Residual Commission

This pay type works by supplying the employee with commission as long as an account is generating revenue for your company. This payment type over time becomes pretty reliable for your employees as long as they maintain the account.

Pros:
*Your employees will work to keep existing clients happy.

Cons:
*If you lose an account, you risk losing your employees as they search for better pay elsewhere.

Other Deciding Factors

Once you consider the main payment structures and weigh the pros and cons chances are you might still be on the fence. If one option doesn't stand out to you yet, ask yourself the following:
At the current time are you looking for those motivated wholly on closing a sale?
-If retaining longtime sales people takes a backseat to having salespeople who are fully motivated but may not stay long term, a commission sales plan may be your best bet. If loyalty is one of your top goals, you may go with a higher salary based option.

What's the average length of your sales cycle?
If closing a deal takes a long time, you will be hard pressed to find commission only sales reps who will be happy to stay with you. Short sales cycles are great for commission-based pay.

Keep in mind that the average age of today's industrial salesperson is 36 and about 60% has either graduated or had some college training or had some college training.

Avg age of today's salesperson is 36 and 60% has either graduated or had some college trainingCLICK TO TWEET

Most salespeople are looking for a position that will not only challenge them, but will also have payoffs that offset the cost of their training and provides them with a solid living.

Companies that try to save a dollar here and there by skimping on compensation are likely to notice not only lower morale across the board but also less desire to sell. With all this in mind, this seemingly simply decision has a large impact on how your team will perform so make sure you take the time to research your options and find the best compromise for both your company and your future employees.

Draw Against Commission Pros And Cons

Source: https://medium.com/@leadfuze/pros-and-cons-of-popular-sales-compensation-structures-d540f427c9ee

Posted by: moorelilly1969.blogspot.com

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