Commission-only sales plans are often very attractive to small business owners because on the surface it seems like an easy way to save money while growing your company. In reality, there are numerous hidden costs associated with sales rep turnover that can actually end up costing you more money in the long run. In addition to a fiscal loss, there are various intangible opportunity costs that may negatively impact your company culture and performance. Before you implement this commission plan at your company, first learn how this model could negatively impact your sales, company culture, and bottom line.
Sales Rep Turnover
A commission-only sales plan puts a lot of pressure on a new rep to succeed and can often lead to turnover in the process. At Naviga, we have seen this happen first-hand. In the early years of our business, we relied heavily on commission only sales reps – and routinely had to re-hire 3-6 months later. These turnovers occurred because many people couldn’t maintain this type of lifestyle. It can require weeks or months of calling and prospecting and a lot of persistence to close a large deal. Combine these actions with the risk of potentially not getting paid for your efforts, and it will oftentimes prove too much for a person to handle. This type of plan sets a sales rep up for failure and you’re the one who has to pay for the fallout.
Hiring More Reps Than Needed
Most companies with a commission-only sales model end up hiring many more sales reps than needed because of the expected fall off of non-performing reps. The entire hiring process becomes costly because it has to be repeated many times as turnovers occur and on a larger scale since you are hiring more sales reps than needed. These costs come in the form of placing job ads, hiring sales recruiters, and time for interviewing candidates. Onboarding and training costs will also add up quickly as turnovers occur.
Losing Out on New Business
When sales reps are supported solely by commission checks, they tend to focus only on activities that earn them money. While it’s a good thing that they’re generating revenue, it can be a bad thing if sales reps only work on activities that are in their best interest. For example, it’s much harder to acquire new business than to maintain old accounts. Many commission only sales reps will focus on what’s easiest and maintain the existing accounts. Also, when sales reps are only concerned with their commission checks, they’re less likely to take direction or instructions from sales managers. It’s a lot harder to get a commission-only sales rep to focus on certain accounts, products or prospects.
Negative Culture
Not only does high turnover increase the cost of your hiring process, but it also creates opportunity costs that could have an even greater negative impact. Specifically, a culture of churn and burn leads to low employee morale, even for those performing well. This low morale affects everyone and will disrupt the culture of your company. Another impact of high turnover is losing out on customer opportunities by having poor performing reps as the face of your business. Reps that are too eager to sell will often rush the sales process and scare off potential customers. Finally, the time spent by managers working with a steady stream of new representatives could be better spent planning sales strategies and developing the existing team.
Using a 100% commission can have an adverse effect on your business goals and increase your costs. Having some employee turnover is inevitable, especially in a stressful work environment like sales, but a high turnover rate can cost your business money and produce unproductive and unsatisfied employees.
If you’re considering adding a new sales rep to your team, contact us today. Not only do we assist in finding you the right candidate, but we can help you develop a comp plan that will fit your business and your needs.
