Mr. Marketing: Selling more using commissions

How do sales commissions work? Mark Coggins, Ramona

Last week we examined how much customer service is enough. Some folks expect “the help” to fawn over them; others in this do-it-yourself economy want minimal interference.

Sales commissions may affect how much attention is paid to a customer. They create strong incentives for employees to work harder and are paid in addition to or instead of base salary.

Commissions are commonly paid to salespeople when you’re buying a car, real estate, insurance, clothing, and similar sales jobs. The salesperson shoulders most of the risk in exchange for potentially large financial results.

These commissions have a huge effect in how aggressive a salesperson is in customer interactions. The greater the percentage of someone’s income paid by commission, the more they’ll hustle for your attention.

Consider John Jones, a Realtor to whom I’ve awarded a six-month exclusive contract to sell my house in Guacamole, TX.

He helped price the house, pays for advertising, holds open houses, shows the place, provides legal interpretations, gets paperwork signed and deals with prospective buyers. He’s paid strictly on commission and only after a deal is consummated.

When my house sells for the agreed price, he’ll earn 6 percent for his trouble. Should the deal tank, his investment is lost.

Commissions can be a tie-breaker in a selling situation. Suppose I ask travel agent Tom for a recommendation to a hotel. If Hotel A pays a 6 percent commission and Hotel B pays 8 percent, guess where he’ll suggest I lay my head while traveling?

However, it’s important to structure commission programs wisely. During the “dot com” heyday my friend Stanley had a sales force of eight. Each was paid a base salary of $125,000 plus a 10 percent commission. Stanley marveled that nobody sold much.

Alternately, if he’d paid a base salary of $30,000 with a 20 percent commission rate, Stanley’s company would have sold more services and the sales force – motivated by the idea of making money – would have potentially made more and had more job satisfaction.

When reviewing your own business sales options, consider what’s being sold and to whom. If you sell high-value items, a sales commission or other incentive may make sense for you.

With that said, I wish you a week of profitable marketing.