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OCTOBER 12, 2000

SMART ANSWERS
Karen E. Klein

Solving the Commission Equation
Nonsalaried outside salespeople require enough compensation to motivate them while not making them too comfortable


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Q: My business offers laser-alignment services to manufacturing facilities. I'd like to hire an outside salesperson to help secure jobs for the company, but I need some guidance on compensation. Does such a person typically get straight commission or a salary and benefits as well?

---- Roy Blackwell, Covington, Tenn.
A: It's very common for an outside salesperson to work 100% on commission, experts say. Someone who works for many companies simultaneously and is not your full-time employee typically does not get benefits or a salary.

However, the question of sales-force compensation is not a simple one and really needs to be answered by the competitive environment of your geographic market and specific industry. Many variables are typically considered, says Sam Parker, co-founder of Justsell.com, an Internet sales and marketing portal. "A business owner needs to strike a balance between salary, commission, and/or bonuses for salespeople that attracts the right candidates for the position, retains those who are hired, and motivates them to continually generate and grow sales revenue," he notes.

DO YOUR RESEARCH.  Before you arrive at that figure, you'll need to find out the going rates for sales reps in your industry and region of the country. You can obtain the data by asking your colleagues, reading industry publications (many do annual compensation surveys), looking at job ads in your local newspapers and on the Internet (www.monster.com and www.headhunter.net are good places to start), and asking candidates that you interview what kind of pay arrangements they have made in the past with other companies.

Most salespeople who work on commission receive little or no benefits or salary and actually prefer it that way, says J. Scott Bailey, president of Bailey Marketing Concepts in Irvine, Calif. "They just want to make the highest income they can, and they know that they are giving something up financially when they settle for [a lower commission rate in exchange for a] salary, car, and expenses," he explains.

Once you have hired a salesperson, experts say you should aim to set the commission at a level where the representative has enough financial security so that he or she doesn't need to go out and look for other jobs. However, the rep must not be so comfortable with the pay that he or she isn't driven to sell hard enough.

OBTAINABLE GOALS.  To provide constant motivation, the commission and/or bonus opportunities you offer should be as limitless as possible, with realistically obtainable goals that stretch reps' abilities and help further develop their professional skills. Parker warns: "Capping commissions will not motivate salespeople."

For more general information on sales and marketing, try Web sites such as www.sellingpower.com and www.smei.org, the home of Sales & Marketing Executives International.


Have a question about running your business? Ask our small-business experts. Send us anail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 6th Floor, 2 Penn Plaza, New York, NY 10121. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.
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