The system you choose must fit your product and service offerings, your sales team’s expectations and more. Here are factors to consider.

Brad Yoho, VP

March 29, 2024

3 Min Read
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One of the primary issues industry companies face year after year is finding qualified salespeople. In our client visits and customer conversations, we’ve found most companies compensate their sales personnel either on straight commission (sometimes with an advance or draw) or on a “salary plus commission” plan. 

To help your company overcome this challenge, it’s crucial to evaluate your compensation plan and determine whether it provides enough value and motivation for new hires to maximize their performance. Your compensation system must fit your company, your product and service offerings, your ideal customers and the expectations you set for your salespeople—it will be unique for every business. 

Compensation system evaluation 

When evaluating your compensation model, it's important to address the question, "Does my compensation plan provide sufficient motivation and differentiation from similar positions?” Bear in mind that you not only have to “sell the hire” against your competitors but also against job offerings in other industries that offer high earning potential. 

 If new hires can be rapidly trained to become productive and earn a significant commission, having a draw account against future commissions earned can be an effective plan. However, for this to work well, your customers must pay promptly, or sales personnel will not be sufficiently motivated. 

Several of our clients who hire only experienced industry salespeople pay straight commission with an advance paid on sales deemed “acceptable to the company” (a draw against anticipated commissions). 

Compensation model examples 

Consider the following comparison: 

1 | A company pays a base salary and has a yearly quota equal to the sales volume that would have to be attained if the salary were measured as a commission.  

Let’s take a $10,000/month salary ($120,000/year). If the company has a calculated 10% commission, sales of $1.2 million annually would balance this salary. Additionally, if a salesperson generates more than $1.2 million annually, they will receive an 8% to 10% commission bump on their sales made after they reach $1.2 million. 

Understand that this is a basic structure—when we design a compensation system for clients, we normally allow for bonuses paid monthly, quarterly and annually or sometimes a combination of all three. 

2 | Another company advances its salespeople a set amount per week and pays no commission or bonuses until the total sales made balance against a 10% commission. 

For example, a company advances its salespeople $1,600 per week ($83,400 per year) and pays no commission or bonuses on the first $840,000 of business, which balances against a 10% commission ($84,000). Again, this is typically computed monthly, quarterly or annually. 

Obviously, there are many factors when comparing “base salary” and “commission-only” plans, but despite the differences in the above examples, your calculations must be based on what is paid to acquire a specific amount of business.  

Monetary and nonmonetary factors  

Finally, there are monetary and nonmonetary factors that determine the motivation of successful salespeople, including (but not limited to): 

  • A reasonable base (salary, guarantee or advance). 

  • A sales quota that equals the proper ratio to the amount paid as salary. 

  • Commission or bonuses for volume in excess of their quota. 

  • Contingent bonuses based on higher volume, productivity and/or profitability (paid annually, biannually or quarterly) as a means of retention. 

  • Benefits such as health insurance, profit sharing and 401(k) plans (these and other perks may not be applicable to independent contractors). 

  • Periodic incentives, such as bonuses, awards, vacations or similar. 

About the Author(s)

Brad Yoho

VP, Dave Yoho Associates

Brad Yoho is the VP at Dave Yoho Associates, the oldest and largest consulting firm operating in the home improvement, remodeling, and home services industries. Learn more about their consulting services, training seminars, and educational products by contacting them at (703) 591-2490 or [email protected]. You can also schedule a FREE 30-Minute Consultation with a Dave Yoho Associate.

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