Straight commission is a “pay for performance plan” where monetary compensation is strictly tied to the results achieved by the salesperson. It is best used when maximum time is provided for the salespeople to sell while non-selling tasks are minimized. Ordinarily, commissions are in direct correlation and proportionate to the value or volume of completed sales transactions made by the salesperson. Since financial compensation plans are offered as motivational incentives to inspire and energize the sales force to achieve greater results, it is assumed that the higher commissions earned from performance will also produce higher profits for the company (Hoffman, 2007). Because straight commissions are directly paralleled with performance outcome, it is believed that salespeople are motivated to attain a higher level of selling effort (Johnston & Marshall, 2009).
The advantage of paying employees on a straight commission basis is that they provide maximum incentives for the salesperson. Straight commissions tend to reward high achievers while discouraging poor performance from salespeople with low productivity. For the company, higher commissions can be used to direct the sales team toward certain products that may produce a higher profit. In addition, it limits the amount of working capital because the business does not pay high wages for their salespeople unless they generate high sales revenues (Johnston & Marshall, 2009).
The disadvantage of paying employees on a straight commission basis is that salespeople have very little financial security because their income is unstable and difficult to predetermine. In difficult economic times, employee turnover is greater because salespeople cannot earn a living on a low income from poor sales. When compensation is directly proportionate to sales volume, salespeople will spend the majority of their time on efforts that earn money while little effort is expended on functions that take time away from selling such as building long term customer relationships. As a result, sales managers have minimum control over their sales team. Additionally, it is difficult for the business to predict selling costs in terms of budget planning (Johnston & Marshall, 2009).
Why is studying Selling and Sales Mgt important to you? What is your experience with Sales and Selling? These are your personal insights, no references required
The decision to take this Sales and Sales Management course was not so much to fulfill a degree requirement but more so to gain interest on an aspect of a rewarding career which brought me much joy and fulfillment. I happened to stumble on a sales career shortly after graduating high school. Early in my professional life I started by leasing apartments without any prior knowledge or experience in the area of sales or marketing. I recall such exhilaration and enthusiasm when I doubled a new company record by leasing 17 apartments in one single day. I was honored with the company’s first “Marketeer of the Year” award and my consistent performance of exceeding goals quickly put me in a role of unfamiliar territory; that of teaching the skill of leasing (albeit sales) to agents throughout the company located nationwide. My ability to sell people on the decision to choose my company’s apartment complexes over any other property did not come from reading books, watching videos, or attending seminars but through a sincere interest in the client. I began by intuitively creating a rapport of asking qualifying questions and listening attentively to their needs and desires while being able to differentiate between the two. I viewed any concerns or objections raised by the customer as another opportunity to meet their wishes until all doubts were exhausted. The...