Tag Archives: sales models

Does Commission Only sales actually work?

Quite regularly I get offered  commission only sales work.  Rarely though its ever phrased that way.  Normally its a discussion about how exciting and lucrative the opportunity is with a statement at the end like “we don’t pay retainers though”.  Instead there is a discussion around “spotters fees”, “trailing revenues”, “your margin” or being “looked after”.

For me its not normally just  products or multi-level marketing schemes, its about larger transactions eg “sell my business” or “can you get some serious money involved”.

Commission only has been around for along time, however I believe it has gained transaction in the last  decade or so the rise of business schools has communicated the message that its a cheap, low risk way of gaining sales.  In some cases it has been highly successful, for instance selling Encyclopaedia’s.  But like most things in life the multitude of failures are hidden from us as we celebrate the lone success.

So When does it work?

There are three situations, or combination of situations where Commission Only sales seems to work well.

  1. When the product is easy to sell, commission only provides a way for the salesman to maximise his earnings.      I have a friends that sells advertising on a commission only basis, when his peers have a base combined with a much lower commission.  He chooses commission only as he spends his day working lists of old customers, which have a very high percentage of people that are ready to make a buying decision.
  2. When the “salesperson” is already selling to the target audience and your “product” would simply be layering  on additional revenue with perceived minimal effort.  This option also covers selling though an ad hoc opportunity.  eg I sat next to this guy at lunch and ….
  3. Commission only also seems to work best when their are short sales cycles measured in hours or days.  Long sales cycles cause two issues, first the time investment increases requiring a much greater ROI for the salesperson.  The second issue is the risk  the sale “undermined” by a competition, a member of the same sales team or even the vendor also increases dramatically.

When does it not work

  1. Obviously its not going to work when you get the reverse of the above.  When your product is difficult to sell, when your salespeople have to find brand new customers and when there are long sales cycles.
  2. However it also doesn’t work  when its an excuse to not invest in your  sales activity.  I don’t mean just pay retainers, I mean not even providing adequate training, management and follow up.  All to often Commission only is perceived as a “I’ve got nothing to lose” solution as it costs the vendor almost nothing.  The reality is that it can lull you into a false sense of activity, or worse you can have your brand completely trashed.
  3. It doesn’t work when the agreement is informal, or the audit trail is poor quality.  Both which normally translate into perceived breaches of the agreement, a lack of trust, and sales coming to a standstill.  All to often I see merchant banker types fighting over who was owed the commission on a deal that mutated and had mutltiple parties involved along the route to a transaction.
  4. And finally, it doesn’t work when what each party brings to the table isn’t valued properly by the other party.  For instance I am endlessly approached by people who wish to access my network for free (the one I slaved long and hard to build) and only wish to pay me if they can conclude a transaction – an activity I have no control over.  Another regular theme is that I can have a website built for them at no cost and then make margins from their brilliant product.

A couple of other points to consider:

  • A Commission Only sales force has little interest in providing customer service beyond the sale.
  • The hiring and management of Commission Only staff can can be a huge drain on the management team, as these people are all independent operators.

My point of view is that Commission Only is a great tool and the right tool when used properly.  Mostly though its an ill thought through strategy that is doomed to failure by the “I’ve got nothing to lose” mindset of the vendor.   Am I wrong?