Negotiating Sales CompensationFrom: Jack Chapman The next items to consider are commission rates or bonuses that you can earn. If you are in sales, you typically earn commissions. You can try to negotiate higher commission rates if you wish. If those are standardized and nonnegotiable, try asking for a higher commission rate over a certain quota. For example, if normal sales commissions are, say, 5 percent, you can ask that sales over $50,000 be paid a 6-percent commission. Sales-compensation packages have several variations: » straight commission, » variable commission, » draw against commission, » advance against commission, » base plus commission, » salary plus commission, » salary and bonus, » salary, and » residuals. I will define them here and discuss the rationale behind each package. Straight Commission The commission phobia of some salespeople puzzles me. They want security; they confuse security with salary. On straight commission, your compensation is strictly a percentage of your sales. To many people that arrangement seems like the most risky, but it’s actually the one most under your control. If you sell well, you’re safe; no one will fire you. If you sell great, you’re not only secure, you can practically write your own ticket. Sometimes I wonder where they think a company’s money comes from. Draws and advances are not gifts; they come out of your sales. They simply represent payment ahead of time of a portion of your future earnings. If you don’t sell, you’re no more secure on salary than on commission. The best salespeople love straight commission because they know they get every dollar that’s coming to them and that their income is entirely in their control. However, straight commission is not practical if you can’t make sales right away. When the sales cycle is lengthy, straight commission is generally not workable. Variable Commission Same as straight commission, but the rate goes up or down depending on sales circumstances. You might be paid a higher commission on new accounts, on larger sales, or on total volume over a certain amount. Negotiating an increase in commission rate for top performance can be very lucrative and motivating. Draw against Commission Also straight commission, except the employer lets you draw a certain amount of money each pay period to help you get started. So if you have a $1,000 draw and you make only $800 in commissions, you would get a check for $1,000 and pay the company $200 back out of future earnings. Most draws are “forgivable,” which means that if the job isn’t working out you could quit and not have to pay back any money you owed the company. Do check this out. Draws may last indefinitely or for a specified number of weeks or months, and the draw itself may be reduced or increased over time. Advance against Commission Like a draw, but it is generally an occasional, rather than a continual, event. It usually will not exceed the amount of commissions already earned. Base plus Commission Same as salary plus commission. Here the company pays you a certain salary, called your base. That’s yours to keep and rely on. Above that, the company gives you a commission according to a mutually agreed-upon formula. Salary Some sales jobs pay a straight salary. These jobs almost always come with bonuses. If not, you can try to negotiate one. Salary and Bonus A bonus is a one-time payment of a fixed amount of money for achieving a certain volume of sales. It could be a weekly, monthly, quarterly, or even annual bonus or a bonus that automatically kicks in when you reach your goal. Residual Commission
This is a type of commission that keeps on paying even if you quit the company. In insurance sales, for instance, after you’ve been with the company for a certain length of time, you’re entitled, for a period of time, to a commission on the payments clients make to the policies you sold them whether or not you work for the company any longer. When your sales work involves a lot of new-account generation, you would be wise to negotiate a residual commission on those new accounts. The justification here is that the reward for selling the account belongs to you; after you leave and the account is maintained, a portion of the income should still be yours for a while. Negotiate both the commission rate and the duration.
Watch out! Don’t get cheated out of your commissions when you leave. One of the most common, but avoidable, misfortunes in negotiating sales commissions is not being clear about what happens with those commissions when you leave the company. Whatever your commission structure is, make sure you get clear exactly how commissions and pay are handled when you leave the company. What sales do you get paid on, and when is the payment due? Often, commissions are payable when the client pays, not when the client is billed. Those payments may lag several months after the sale is made. Get it in writing now, when you begin. You don’t want to fight this battle when you’re gone; you’d lose. See the “Negotiating a Severance Package” sections in Chapter 8 for more about this. Jack Chapman is a nationally know job coach and seminar speaker specializing for the last 20 years in salary negotiations and job interviews. For more information on Salary Negotiations, please visit: http://www.breakthrough-salaries.com/ |