Why 100% Commission Sales Compensation Plans Usually Don't Work

April 15, 2018

Many companies make the mistake of using 100% commission sales compensation plans.

Why do they do it? They feel a 100% commission plan will minimize their financial risk, as no sales made means no commissions paid. Besides, any salesperson that is any good should have enough faith in their own ability to work on 100% commission, right?

Wrong! Any salesperson that IS any good knows it takes time to build an opportunity pipeline and begin closing sales, regardless of how much experience they have or how robust their personal network is. Plus, they must invest considerable time and effort to learn about their new employer and its products and services. They still need to pay their bills while this learning and pipeline building takes place. Not surprisingly, these talented salespeople usually choose to work for employers that are willing to invest in them.

If you run an ad for a 100% commission sales job, what kinds of candidates are you likely to see?

Usually they will fall into the following three categories:

1. Manufacturers' Representatives: These salespeople work as independent contractors, not employees. Usually they sell a portfolio of products and services on behalf of multiple clients.

Make no mistake - these are mercenary salespeople. The amount of time and effort they will invest in selling your company's products or services will correlate directly with the amount of return they feel they can earn on their investment. If other client companies offer more lucrative compensation plans, a monthly retainer, or do a better job of providing leads, don't expect to see much activity for your company's offerings!

2. Newbies:These candidates are exploring sales as a career for the first time. Because of their lack of experience, they may have difficulty finding jobs that aren't 100% commission; or, they just may not know any better.

Newbies may or may not have the talents required for success in your specific sales job (80% of them won't), and they probably don't have the first clue about how to build a sales opportunity pipeline. Still, they may be willing to come on board and grind away for a few weeks. However, if they don't luck into some early sales, chances are they will drift away and look for an employer that is willing to teach them how to sell and pay them something while they learn.

3. The "Other 80 Percent": It is rare for a salesperson with both talent and experience to consider a 100% commission sales job. If an "experienced" salesperson is willing to take your 100% commission sales job, they usually belong to the 80 percent of salespeople that produce 20 percent of sales!

Perhaps this salesperson is making a last-ditch effort before giving up on sales. Perhaps they need to be able to say they are employed while they search for another job. At any rate, the odds are very poor that one of these salespeople will ever deliver more than mediocre performance.

Lack of Salesperson Accountability

Another challenge unique to 100% commission sales compensation plans is you lose the ability to hold salespeople accountable for performing administrative activities. These activities include attending training sessions and sales meetings, working from the office on specific days, and updating records in your company's contact management system. If a 100% commission salesperson doesn't do what you ask, so what? What have they got to lose?

One 100% Commission Concept That CAN Be Successful

There is just one 100% commission concept that I have seen produce good results with some consistency. It is where:

  • The company supplies most or all of the salesperson's leads

  • The leads are of reasonably good quality

  • The sales cycle is relatively short (ranging from a one-call close to no more than several weeks in length)

This combination of circumstances can enable salespeople to begin earning commissions quickly. Plus, they don't have to prospect, which is an attractive proposition to many salespeople. This increases the chances that quality salespeople will be willing to accept the position and be able to earn enough money to motivate them to stay in the position.