The pros and cons of sales commission
Rewarding your employees well for the work they do is imperative because if you don't, you stand a chance to lose them to your competition. Compensating most employees is a fairly straightforward process. However, deciding on the right amount of sales commission for sales employees can get tricky. Sales commission is the additional amount that employees receive over and above their salary for exceeding expectations. It is difficult to fix a commission rate as employers don't want to set the bar so high that it is unattainable by the employees.
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We've compiled a list of the pros and cons of sales commission. Read on!
Objectives are met
Your company rewards its employees based on their performance. If the employees have achieved their sales target, they are entitled to the commission. This ensures that the team reaches their financial objectives and it makes it easier for the company to maintain a sales budget.
It provides a win-win situation
A commission-based plan allows a higher potential for earning than a salary-based plan. Since this involves the opportunity to earn a better income, it attracts top-performing sales people who can produce a good amount of sales which is a win-win situation for the employee as well as the organisation.
It is economical
If you're paying an employee based solely on their sales, it proves to be more economical for a company. This especially works great for startups who don't have a steady cash flow but yet need to drive the sales of their products and services.
It provides flexibility
It has been proven time and again that employees who have the freedom to work as per their own schedules are more productive than those who have lesser flexibility and set timings. Employees who work based on commission can afford this luxury and are therefore happier and more satisfied than their salaried counterparts.
It is stressful
Working on commission is a stressful job. In order to earn higher amounts, sales individuals sometimes resort to aggressive tactics like bombarding the customer, which can scare them away and harm the company's reputation in the long run.
It offers no stability
Salespeople have little to no job security as an economic downturn can cost them their jobs. Apart from that, there is no guaranteed income and this can lead to many people exiting this line sooner or later in search of more stable jobs.
It is very one dimensional
Sales people are only focused on selling the products and getting their commission. Through this process, they tend to ignore the non-sales related aspects of their job such as after-service or building relations with customers. Also, the uncertainty of commission selling can lead to a lot of stress causing employees to burn out and quit their jobs.
It leads to stagnation
Employees who work on commission and earn high compensation might refuse to move into managerial positions as that might result in a pay-cut for them. This stalls their career growth.
Every job comes with its own set of pros and cons and it is up to the founders of the company to decide if they want to employ salary-based or commission based employees.