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Commission-only sales have been around for a long time and it is the primary method for compensating independent/manufacturer’s sales agents. Commission-only plans are highly attractive to new business start-ups who are seeking to establish themselves in the marketplace or to penetrate a specific market or territory quickly.
 
Under certain conditions this form of compensation plan works exceedingly well and it is highly attractive to salespeople. Consider the following factors: 
 
- Simplified sales process. Commission-only plans provide a way for the salesperson to maximize their earnings. In order for that to take place, there needs to be a high transaction level, resulting in several sales per day or week. Typically the ideal sales process involves a few defined steps: generate/follow up a lead, make an appointment with the decision-maker, present the product benefits and pricing, ask for the order and close the sale.
 
- Formalize the relationship. If there is no signed agreement between the parties outlining the duties and responsibilities along with a defined set of sales objectives and a regular payment schedule, the relationship is doomed to fail. Informal or verbal agreements can result in breaches of the agreement, a lack of trust, and sales coming to a standstill over matters such as what constitutes a sale and the percentage of commission to be paid out and under what terms. 
 
- Foster mutual respect. Commission-only plans don’t work when what each party brings to the table isn't valued properly by the other party. Many salespeople are approached by suppliers who wish to access their network of contacts/customers for free and only wish to compensate them if and when a sale is made. 
 
- Lead generation program. In addition to having the salesperson call upon likely prospects, a supplier needs to develop a marketing plan and invest monies into generating qualified leads for the salesperson.
 
When does it not work? 
Obviously a commission-only plan is not going to work when a supplier does not take into consideration the above factors. It will also fail if you:
 
- Fail to invest in success. Commission-only plans are perceived as a low risk solution that cost the supplier almost nothing. The axiom “Nothing ventured, nothing gained” is accurate and suppliers that fail to provide adequate training, management and follow-up to their commissioned salespeople run the risk of having their brand image tarnished, lacklustre sales and poor market penetration.
 
- Length of sales cycle. Commission-only plans work best when there are short sales cycles measured in hours or days. Long sales cycles cause two issues; first, the time invested (Return on Time Invested) by the salesperson is greater and therefore translates into lower earnings; and second, the risk of the sale being "undermined" by a competitor (e.g. a member of the same sales team if the territory is not exclusive) or even another vendor also increases dramatically.
 
- Established customer base. When the salesperson is already selling to the target audience and your "product" would simply be "layering on" additional revenue with minimal effort on the part of the salesperson.
 
- Lead generation program. In addition to having the salesperson call upon likely prospects, a supplier needs to develop a marketing plan and invest monies into generating qualified leads for the salesperson.
 
Some additional points to consider: 
- A commission-only sales force has little interest in providing customer service beyond the sale unless compensated for these efforts in the form of a higher commission payout. 
- The hiring and management of commission-only salespeople can be a huge drain on the management team, as these people are all independent contractors.
 
Commission-only plans are a great tool and are highly effective under the right conditions. A supplier needs to evaluate whether this type of sales channel will be effective in furthering their company’s sales efforts and whether they are prepared to invest in the relationship in order to succeed.
 
 
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