Each methodology for compensating outside salespeople has its advantages as well as limitations. We’ll review them here briefly.
Straight Salary- It’s done in extremely rare cases in apparel industry. It offers little incentive for reps to maximize their potential income. In the few companies I know that have salaried salespeople, have been at the business for several years, don’t solicit new accounts, and spend most of their time at a desk, though the good ones work the phones well. Most salaried reps are content to trade potential for security and stability.
Straight Commission –This is what’s favored by most companies and, given the industry’s seasonal peaks and valleys, is the reason why so few reps succeed. As a rule, reps paid on straight commission don’t last long and tend to move on to positions with other companies, sometimes competitors that provide a base salary they can count on during the valley periods. Those who succeed on straight commission arrangements have many years of experience, bring a strong book of accounts, and manage their acorns well -the ones they put away for winter and the ones they sow to grow new accounts.
Draw-Against-Commission- This works mainly for experienced reps with strong followings. For rookies it keeps them on board longer than straight commission will, but it rarely endures more than six months. When reps get behind (they owe the company sales against advances), they look for greener pastures. At the same time, the boss loses confidence in the rep and soon enough cuts or significantly reduces the draw. There are few winners in this system over the long haul.
Percentages of Gross Margin or Gross Profit- These arrangements see their greatest success with experienced reps and with some highly successful independent reps. But as it usually entails intimate understandings by the rep of the company’s cost structures, it tends to draw in orders sold at low margins — which help the rep more than company. It’s the most prevalent system used i n the promotional products industry, especially with independent reps and part-timers.
Base Plus Commission (plus other monetary incentives) – Of all the systems, this is the one with the most success in terms of keeping good reps on board, keeping them motivated and well paid, and retaining them for the longer term. It softens the slow times, increases the reps’ efforts and returns in strong seasons, and assures the rep some income stability, security, and a comfort level with the company.