One of the most common questions I get from newer business owners is how to hire commission-only salespeople.
Typically, these entrepreneurs are at an early stage of their business and can’t afford to hire salespeople full-time, so they view commission-only sales reps as a way to grow on the cheap.
My advice is usually the same: Do the selling yourself until you can hire at least two salespeople on a base-plus-commission compensation package.
My rationale is as follows:
1. Don’t throw away free market research
Direct, unfiltered customer feedback in the first few months is too critical to learn second-hand. You need to hear directly what your customers are saying. You need to know when your sales pitch is engaging them and when it is losing them.
In the early days of a business, selling is one part revenue generation and at least two parts free market research. Don’t let anyone stand in the way of hearing first-hand customer feedback.
2. 50/50 base plus commission
Generally speaking, I have found you get what you pay for when it comes to salespeople. If you’re going to look for commission-only salespeople or ask a third-party company or broker to represent your product without giving you any guarantee of making you money, most will gravitate to the path of least resistance
Of course, if you happen to have the cure for baldness, commission-only reps will focus on your product. But assuming your offering needs at least some selling, most of the time, it will get buried among the many products the salespeople are selling and be ignored in favour of the new, new thing.
Instead of going the commission-only route, wait until you can afford to pay at least a basic salary plus a healthy commission. In terms of percentage of salary to bonus, a general rule of thumb is 50/50, meaning if the salesperson wants to earn $100,000 a year, offer a $50,000 base salary plus a sales territory and corresponding budget that could reasonably generate an additional $50,000 in commissions.
Of course, smart salespeople will want to get as much of their compensation guaranteed as possible, but 50/50 is a good place to start the discussion.
3. Two reps, never one
It’s tempting to hire one salesperson to start out, but I’d recommend waiting until you can afford a base salary for two.
Salespeople are competitive by nature and will duke it out for top honours. In addition, if you have just one salesperson, you’re never quite sure if he or she is working hard enough or just reacting to inbound customers you would have gotten without pro-active sales effort.
Hiring your first sales team is a critical step in building a valuable company. Do the selling yourself, and you’ll know first-hand what your reps need to do to earn the commission you make available to them.
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He is the author of Built To Sell: Creating a Business That Can Thrive Without You, published by Portfolio Penguin.