Should We Pay Salesmen a Salary or Commission Only? Seeking Your Insights and Experiences

Considering Salesmen Compensation: Payroll vs. Commission

I am seeking help on whether it is beneficial for a company to have salesmen on payroll or just hire them on a commission basis only. I understand both have their pros and cons; our company is exploring the various advantages of having salesmen on a commission-only basis.

Please help me with things that we may have to consider in the process, such as what kind of commissions should be set to motivate them to get us more closed deals. We are into Network Operations Center, Offshore Development Center, Telecom consulting, etc.

I am open to different views and opinions.

With Regards,
Nithya

Integrating Salesmen into Payroll with Benefits and Commissions

How about employing salesmen on payrolls, creating a different salary structure, providing them with indirect and retirement benefits, giving them an identity within the organization, and yet compensating them with commissions so that together they earn handsomely?

This approach fosters accountability, credibility, and helps in building strong customer relationships. Your customers will be assured that they are dealing with dedicated individuals who consistently attend to their needs. A salesman on payroll is committed to representing your organization at all times, enabling them to offer focused attention to customers.

This is not out-of-the-box thinking. Similar systems have been implemented before, and I have experience in managing such a setup. I am confident that many others have also successfully utilized this system to their advantage.

Regards,
Samvedan
June 2, 2011

Dear Nithya, this is a common problem with the sales function. Due to low returns on investment, in other words, high expense ratios and the commercial non-viability of salesmen, management is forced to consider the sentiments expressed in your letter. This is acceptable if you have MLM-type marketing where perhaps 20 percent generates 80 percent of the business.

However, if the company aims to build a better corporate image and brand equity in the segment, they must maintain a stable sales force and consistently groom them through training and motivation to achieve organizational objectives.

In sales and marketing, nothing is inherently wrong or right. It is a matter of success. So, keep an open mind and explore various options.

Regards,
Dhiren Vyas
[Phone Number Removed For Privacy Reasons]
[Email Removed For Privacy Reasons]

As Samvedan mentioned, it has to be a combination model. Like you mentioned, every option has its own set of pros and cons. So, you need to figure out the best combination that works for your situation.

In a way, it may need some amount of experimenting too—with different combinations over a specific timeframe and in a limited geographic area—and judging the results—then refining and freezing the final model before expanding to cover the whole company's sales force.

Regards,
TS

Hello All, Firstly, thank you to Samvedan, Diren Vyas, and Tajsateesh for your prompt replies and valuable guidance. I apologize for the late response, as I was unwell and off track for a few days.

Key Considerations for Sales Compensation

Valuable points that cannot be forgotten include accountability, company image, uninterrupted attention, and control over their activities.

I will present these points in the forthcoming meetings and suggest a combination of fixed and variable pay structures that will motivate and also keep the salesmen on their toes.

Seeking Guidance on Pay Structure

I would like to seek help again. Is there a guideline or rule that needs to be followed when deriving a suitable combination of fixed and variable pay scales? What should the breakup be like?

Thank you once again.

Regards,
Nithya Mehta