Sales is a necessary part of every company, and whether you call it business development, client relationship management, or account management, it’s still sales. Jobs in these spaces tend to have a heavy commission element to them in order to incentivize people to perform. In this article, we are going to look at these commission-based jobs from both a working standpoint and a hiring standpoint.
What A Commission-Based Job Is
A commission-based job is one where the majority of one’s compensation is based on sales performance and the commissions (also known as residuals) from those sales. Commission-based jobs tend to be more common in certain industries than others, like real estate or software sales, and they are a unique type of job that you don’t find them on the typical job boards.
There are 3 kinds of commission-based jobs:
- Straight commission-only roles (usually sales positions)
- A small salary plus majority of compensation is commission
- A “draw” on commission-based salary (this is where you get a monthly salary, but your sales are expected to meet that and then exceed it; the salary is meant as a fall back for months where sales are not good)
But Wait, Are Commission-Based Jobs Legal?
Yes, working in or hiring a commission-based role is legal. However, there is definitely a stigma out there that hangs onto commission-based jobs. For example, most job boards including Indeed.com rarely will allow commission only jobs to be posted on their job boards for fears that they are a scam. Many qualified people will also refuse to work in a commission-based role. This is why we recommend trying options 2 or 3 for your commission-based roles- having a small salary or a salary on a draw- if you are going to recruit for a commission-based role.
We also highly recommend having a paid training period that is between 30-120 days long.
So what kind of roles are commonly compensate as commission only?
What Kind of Jobs Are Commonly Commissioned Based
Three popular examples of commission-based jobs are insurance agent, real estate agent and financial advisor or stockbroker. A few very popular companies like Aflac and Northwestern Mutual are famous for their commission-based jobs. In the end, they are all sales jobs, which is why we refer to these roles as salespeople throughout this article.
Other roles that are commonly commission-based or are majority commission include:
- Inside Sales
- Appointment Setters
- Software sales roles (i.e. ADP)
- Many roles that are termed Business Development
Commission-based jobs span industries ranging from software to marketing firms. They are used at small and large businesses alike, although many large companies opt for also offering a salary and benefits to these type of roles. Most small businesses may try to opt for commission only in hopes to save a buck or two.
Why You Would Work in a Commission-Based Job
If you have the gift of sales as one of your top skills, working in a commission-based job, or one that is heavily commissioned based, could greatly increase your income. Sometimes, larger companies place a cap on commissions or they have sales and business development roles that have no commission at all. Those roles don’t incentivize you (or the salesperson) to perform at a high level and don’t make the most of that sales gift.
Commission-based roles can also make sense for side gigs in addition to your current role (as long as you don’t break any conflicts of interest). Many people now have a side gig where they sell jewelry, software, skincare, or other products on their own time like the old Tupperware parties back in the day. Most of these jobs are independent contractor, commission only roles.
Let’s now look at the other side of the coin- why would you hire a commission-based person?
Why You Might Hire a Commission-Based Role
If you have a small business that needs a successful salesperson, or maybe you simply can’t run the business AND make the sales anymore, you might be tempted to hire a commission-based person for your business. This can be a great solution to help free you up for running the business more than just selling, as well as give you the ability to expand your market and increase your revenues.
Before you hire a commission-based person, ask yourself the following 3 questions:
1. Will you provide the new hire sales leads, or do you expect them to also prospect for new business right away?
This is an important question in terms of how you will structure compensation. If you want someone who is commission only, you will probably have to provide them the leads to call upon or meet with. Otherwise, they are prospecting for free, which will not motivate them. You will need to pay a salary or perhaps have a training period with pay in order to get them up and going if they are supposed to also prospect.
2. Will this person work from home or remotely, or will they be in the office?
This is an important distinction to make, especially if you are going to offer a salary plus commission or an hourly rate plus commission. The reason is that there are rules on exempt vs non exempt employees in the inside and outside sales space, and you may be then looking at needing to pay overtime to someone if they work more than 40 hours in a week. Employees who work from home in outside sales as a commission-based role is generally an exempt position, and they are also generally independent contractors.
3. How am I going to train this person on my products/services?
Maybe you think you are going to hire a commission only person who can work from home. But then you need to train them on your products. Do you have training materials? Do you have a 30, 60, 90 day ramp up program to show them that will lead them to success? If the answer is no, you may want to reconsider a commission only remote position or you could be setting yourself up for failure.
If all three of those questions still gave you answers that hiring a commission-based role is the answer for you (even with a salary or hourly rate too), we will tell you how to hire one in the next section.
How to Hire a Commission-Based Role (or Where to Look for One)
Let’s now look at the 6 steps (plus one bonus step) you need to take to hire a commission-based position. We also will go over where commission-based roles are posted in step 3, so if you are looking for a commission-based job, you can try some of the job boards we suggest there.
Step 1: Write your job description
You need a solid job description in order to get the right people to apply to your position, or so that you can send it to potential candidates. We talk you through how to do that in this article.
Step 2: Create your compensation plan
Based off your new job description, you now need to come up with your compensation plan. Remember, you can do commission only, a draw on commission or a salary plus commission. What makes sense from the 3 questions you answered above?
Doing some research on the commission-based jobs out there would also be useful to give you perspectives on commission plans. Look also at your profit margins and bottom line needs- what kind of commissions can you give without breaking your profits?
Most commissions for enterprise level accounts are only 1-3%, but those deals run into the millions of dollars. Smaller deals call for a larger commission; you might even choose to do a plan where the percentage changes by the dollar amount of the sale.
For example, a retail store might use the following commissions:
- $5 for sales $25-$50
- $10 for sales $51-$100
- $25 for sales $101-$250
- $50 for sales $251-$500
- $100 for sales $501+
You could also play with percentages instead like:
- 5% for sales $25-$50
- 10% for sales $51-$100
- 15% for sales $101-$250
- 20% for sales $251-$500
- 25% for sales $501+
Step 3: Post your job
Now that you have a job description and potential commission plan, you can post your job. There is no need to post your commission plan as a whole, but you might want to list the potential earnings, the base salary if there is one.
Some places that post commission-based jobs are:
- Freelancer websites like Upwork
- Indeed.com (your position should have an hourly rate or salary as well)
- Many niche job boards circled around commission-based jobs (although beware of scams)
Many job boards, like FlexJobs and Craigslist, no longer allow commission ONLY jobs because of these scams. This is why we highly recommend having a base hourly or salary in addition to the commission or a draw on commission plan.
Step 4: Phone screen candidates
Once you start to review resumes, you will want to take the top ones and hold a 5-30 minute phone screen with them depending on what you want to get out of the call to how much time you have. Our phone screen guide has 5 minute and 30 minute phone screen templates, as well as 51 questions you can ask.
Step 5: Have a structured interview with candidates
For a sales role, you need to get around the salesperson. Most sales people are going to be GREAT interviewers (beware if they are not- they are probably not good at sales then!) You need to get around personality and evaluate people apples-to-apples and the best way to do that is a structured interview. We provide a structured interview template here, as well as a ton of ideas for questions and how to rank candidates.
Step 6: Hire a candidate for a short contract or training period
A commission-based role is a great position that could be a contract-to-hire situation versus just jumping right into full time employment. You need to see that a salesperson can perform, especially if they boast a good track record (and good reference checks). One of my clients starts people only at 10-15 hours per week during the training period to make sure that it’s a good long term match- they’ve found this saves everyone time and stress, as well as it lets them part ways with people on good terms since not a ton of time was invested.
Step 7: Help the candidate to succeed (train them)
If you own a business, you know what it takes to sell your product or service. You’ve been doing it for a long time, whether consciously or unconsciously. Help your new hire to success by having a mentoring and training relationship with them. Should the new hire shadow you? Listen in on phone calls? Should they first learn the products and go through the funnel as if they were a customer?
There are a lot of ways to train a sales person and only you can tell what would work best for your business. Prepare a training schedule and plan for as soon as this person is brought on board in order to help them succeed- and to get you sales!
Let’s look more at the benefits and drawbacks to commission-based roles.
Pros & Cons to Hiring a Commission-Based Role
As with anything, there are pros and cons to hiring a commission-based role, even if you pay a salary in addition to it. These pros and cons can also be parallel to what it’s like working in the field.
Pro 1: You get what you pay for.
In my personal HR experience recruiting commission only and commission plus salary roles, you really get what you pay for. If you are trying to save a buck, you will not get great candidates. On the flip side, if you provide a solid compensation plan, you will attract seasoned sales professionals who can take your business to the next level.
Pro 2: Independent contractors are less overhead.
Hiring a person on commission or close to it, and keeping them as a contractor or 1099, can save you on overhead like payroll taxes, benefits, and more (think office space, fringe benefits). Also, if the person doesn’t work out- poof! You can easily terminate their employment.
Pro 3: With a good salesperson, your sales will soar.
Connecting to our first pro that you get what you pay for, when you find a great commission-based salesperson, you will see your bottom line fatten up and your business grow. That’s the whole point of hiring a commission-based role!
Pro 4: A good one might know other good commission-based people.
Like many industries, people in the commission-based space tend to know other folks in it. So with a good one, you may end up hiring 1-2 more from their network and really growing your business to the next level.
There is always the other side of the coin to consider as well for commission-based jobs. Let’s check out their main 2 drawbacks.
Drawbacks to Commission-Based Jobs
Though given a bad reputation in many places, commission-based jobs are not the enemy that some job boards have made them into. However, there are some legitimate drawbacks to them:
Drawback 1: High Turnover
If a commission-based hire doesn’t like your product, their numbers, the leads or anything else… they will leave, and they will leave fast. Have all of your ducks in a row before even considering hiring one as you’ll be back to square one super quickly.
Drawback 2: Poor Reputation in the Industry
As we stated above, commission-based jobs have gotten a bad rep from scammers that steal your identity, or worse, when you apply for them. Make sure you have a solid job description and a transparent compensation plan that you can show candidates you are ready to interview so that you can show you’re one of the good companies.
The Bottom Line
Commission-based jobs, whether you are working in one or are hiring in one, are not for everyone. They are a unique field and the people who excel in them tend to have a certain personality and gusto that is hard to find as an employer and hard to maintain the energy if you are working as one. Our best recommendation is to find a small salary plus commission role or a draw on commission role where you can at least mitigate the drawbacks of commission-based jobs.