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Commission-based jobs have been around for centuries, but in the modern era, they are much more prominent. As a result of this growth and changing landscape, there is an increased need to understand these types of jobs. This article gives you all the information that you need to know about working in or hiring commission-based positions.
Every organization needs sales, and whether you name it business development, client relationship management, or account management, it is still sales. In order to incentivize employees to succeed, jobs in these domains tend to include a high commission component. We’ll look at commission-based employment from both a working and hiring perspective.
What Exactly Is A Commission-Based Job?
Commission-based employment is one in which the bulk of a person’s pay is determined by sales performance and commissions (also known as residuals) earned from those sales. Commission-based employment is more widespread in some areas than others, such as real estate or software sales, and they are a different sort of work that you won’t discover on traditional job sites.
There are three types of commission jobs:
- Roles that are strictly commission-based (usually sales positions)
- A minor salary is paid, and the rest of the remuneration is based on commission.
- On a commission-based compensation, a “draw” (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 fallback for months where sales are not good)
However, there is a negative connotation associated with commission-based work. For example, most job boards, including Indeed.com, would seldom allow commission-only positions to be placed on their sites due to concerns about scams. Many highly skilled individuals will also reject to work in a commission-based position. If you’re going to recruit for a commission-based function, we suggest attempting choices 2 or 3–having a tiny salary or pay on a draw—for your commission-based roles.
We also strongly advise having a paid training term of between 30-and 120 days.
What Kinds of Jobs Are Most Frequently Commissioned?
Insurance agents, real estate agents, and financial advisors or stockbrokers are three common commission-based vocations. Aflac and Northwestern Mutual, for example, are well-known for their commission-based positions. Finally, they’re all sales positions, which is why we’ll refer to them as salespeople throughout this piece.
Other popular commission-based or predominantly commission-based occupations include:
- Sales
- Setters of appointments
- Roles in software sales (i.e. ADP)
- Positions referred to as “business development.”
Commission-based positions may be found in a variety of sectors, from software to marketing organizations. They are utilized by both small and big enterprises, while many major corporations choose to pay these positions a salary and provide perks. Most small firms may attempt to save a few dollars by opting for commission alone.
Why Would You Want to Work for a Commission-Based Company?
Working in a commission-based career, or one that is primarily commissioned-based, might considerably enhance your income if you have the gift of sales as one of your top qualities. Larger organizations may impose a commission ceiling or have sales and business development positions that pay no compensation at all. Those positions don’t incentivize you (or the salesman) to perform well and take advantage of the sales gift.
Commission-based jobs might be a good way to supplement your present income (as long as you don’t have any conflicts of interest). Many individuals today have a side business selling jewelry, software, cosmetics, or other things on their own time, similar to the old Tupperware parties. The majority of these positions are commission-only, independent contractor positions.
Let’s take a look at the other side of the coin: why would you engage someone who is paid on a commission basis?
Why Would You Hire a Commission-Based Position?
You could be tempted to recruit a commission-based individual for your company if you have a tiny firm that requires a good salesman, or if you just can’t manage the business AND make the sales anymore. This may be a terrific way to free up your time so you can focus on operating your company rather than simply selling, as well as grow your market and boost your earnings.
Ask yourself the following three questions before hiring a commission-based employee:
1. Will you supply sales leads to new hires, or will you expect them to start prospecting for new business straight away?
This is a crucial consideration when it comes to determining how you will arrange payment. If you want someone who works only on commission, you’ll have to offer them leads to contact or meet with. Otherwise, they will not be motivated since they are prospecting for free. If they’re intended to prospect as well, you’ll need to offer them a salary or have a training period with compensation to get them up and running.
2. Would this individual work from home or from a distant location, or will they have to come into the office?
This is a crucial difference to make, particularly whether you want to offer a salary plus commission or an hourly rate plus commission. The reason for this is because in the inside and outside sales area, there are laws about exempt vs. non-exempt personnel, and you may end up having to pay someone overtime if they work more than 40 hours per week. Outside salespeople who operate from home on a commission basis are normally exempt, and they are also generally independent contractors.
3. How would I teach this individual on my products/services?
Perhaps you want to engage a commission-only worker who will be able to work from home. Then you’ll have to teach them how to use your stuff. Do you have any resources for training? Do you have a 30-day, 60-day, or 90-day ramp-up program that you can demonstrate to them that will lead to their success? If the answer is no, you should think twice about taking a commission-only remote job, as you may be setting yourself up for failure.
If all three of those questions still lead you to believe that a commission-based position (even one with a salary or hourly rate) is the right fit for you, we’ll show you how to find one in the following section.
How to Hire for a Commission-Only Position (or Where to Look for One)
Let’s take a look at the six processes (plus one extra step) involved in hiring a commission-based role. In step 3, we’ll also go over where commission-based jobs are advertised, so if you’re searching for one, check out some of the job sites we recommend.
Step 1: Create a job description for yourself.
To get the proper individuals to apply for your position, or to send it to possible applicants, you’ll need a good job description. In this post, we’ll show you how to accomplish it.
Step 2: Make a compensation strategy.
You must now devise a compensation strategy based on your new job description. Remember that you may work on a commission-only basis, a commission-only basis, or a salary-plus-commission basis. What do the three questions you answered above mean?
Researching the various commission-based occupations available may also help you get a better understanding of commission schemes. Examine your profit margins and bottom-line requirements as well. What type of commissions can you provide without jeopardizing your profits?
Most corporate level account commissions are merely 1-3 percent, but those agreements might be worth millions of dollars. Smaller sales need a higher commission; you might even devise a strategy in which the percentage increases according to the dollar amount of the sale.
A retail business, for example, may employ the following commissions:
- $5 for each sale $25-$50
- $10 for each sale $51-$100
- $25 for each sale $101-$250
- $50 for each sale $251-$500
- $100 for each sale $501+
You might also experiment with percentages, such as:
- 5% commission on sales $25-$50
- 10% commission on sales $51-$100
- 15% commission on sales $101-$250
- 20% commission on sales $251-$500
- 25% commission on sales $501+
Step 3: Create a job posting.
You may publish your job now that you have a job description and a prospective commission plan. There’s no need to disclose your commission plan in its entirety, although you may wish to include the possible profits and, if applicable, basic pay.
The following are some venues where commission-based employment is advertised:
- Websites for freelancers, such as Upwork,
- Indeed.com (You should also have an hourly rate or a salary for your job)
- A lot of specialty employment forums focused on commission-based work (although beware of scams)
Because of these frauds, several employment platforms, such as FlexJobs and Craigslist, no longer accept commission-only work. This is why, in addition to the commission or a draw-on commission plan, we strongly advise having a basic hourly salary.
Step 4: Conduct a phone interview with potential prospects.
When you’ve finished reviewing applications, choose the best ones and do a 5- to a 30-minute phone interview with them, depending on what you want to get out of the conversation and how much time you have. Our phone screen guide includes templates for 5 minute and 30-minute phone screens, as well as 51 questions to ask.
Step 5: Interview applicants in a methodical manner.
You must get around the salesman in a sales function. Most salespeople are excellent interviewers (and if they aren’t, they’re usually not very good at selling!) The easiest approach to get around personality and compare individuals apples to apples is to conduct a formal interview. Here you’ll find a structured interview form, as well as a slew of question ideas and tips on how to rate prospects.
Step 6: Hire someone for a short-term contract or training.
A commission-based job is a wonderful option for a contract-to-hire arrangement rather than stepping immediately into full-time work. You want to evaluate whether a salesman can deliver, particularly if they have a proven track record (and good reference checks). One of my clients only hires individuals for 10-15 hours per week during the training phase to ensure a good long-term fit; they’ve found that this saves everyone time and worry, and it also allows them to part ways with people on good terms since not a lot of time was spent.
Step 7: Assist the applicant in achieving success (train them)
You know what it takes to sell your product or service if you operate a company. Whether consciously or subconsciously, you’ve been doing it for a long time. Maintain a mentorship and training connection with your new recruit to ensure their success. Is it OK for the new recruit to follow you around? Is it legal to listen in on people’s phone calls? Should they learn about the items first and then go through the sales funnel as if they were a customer?
There are several methods to teach a salesperson, and only you can choose which one is ideal for your company. Prepare a training program and strategy for as soon as this individual is hired so that you can assist them in succeeding—and increasing your sales!
Let’s take a closer look at the advantages and disadvantages of commission-based jobs.
Pros & Cons of Hiring a Commission-Based Role
Even if you provide a salary on top of the commission, there are advantages and disadvantages to employing a commission-based position. These advantages and disadvantages might also be compared to what it’s like to labor in the field.
Pros
You get what you paid for.
When it comes to commission-only versus commission-plus-salary jobs, I’ve found that you get exactly what you paid for. You will not obtain quality prospects if you are attempting to save money. On the other hand, if you provide a competitive salary package, you will be able to attract seasoned sales experts who can help you grow your company.
Independent contractors have lower overhead than employees
Hiring someone on commission or close to it and maintaining them as a contractor or 1099 may help you save money on things like payroll taxes, benefits, and other expenses (think office space, fringe benefits). Also, if the individual does not exercise, poof! Their job may be simply terminated.
Your profits will skyrocket
In keeping with our first point, you get what you pay for, when you locate a superb commission-based salesman, your bottom line will fatten up and your company will expand. That’s why you hired a commission-based position in the first place!
Networking
Individuals in the commission-based business, like those in many other industries, tend to know other people in it. So if you find a good one, you may wind up recruiting 1-to 2 more people from their network and taking your company to the next level.
Cons
For commission-based employment, there is always the other side of the coin to consider. Let’s take a look at their two biggest flaws.
A lot of turnovers.
If a commission-based recruit doesn’t like your product, their figures, the leads, or anything else about it, they’ll depart quickly. Before employing one, make sure you have all of your ducks in a row. Otherwise, you’ll be back to square one in no time.
A bad reputation in the industry.
As previously said, commission-based jobs have a negative reputation due to fraudsters stealing your identity or worse when you apply for them. Make sure you have a sound job description and a clear payment plan ready to present to prospects when they come in for an interview so you can demonstrate that you’re one of the reputable organizations.
Final Thoughts
Working in a commission-based job, whether as an employee or as a recruiter, is not for everyone. They are a distinct profession, and those who thrive in it tend to have a specific mentality and zeal that is difficult to discover as an employer and difficult to sustain as a worker. Finding a modest wage plus commission function or a draw-on commission work where you can at least reduce the disadvantages of commission-based employment is our best option.
Frequently Asked Questions
Is it worth working a commission-based job?
It’s worth working a commission-based job if you are getting paid by the hour. If you’re only taking home $200/week and it takes an average of two hours to make your money, then no, it is not worth it. But if you’re making $500 in one day (which can be done), then apparently yes!
