“CloserQ, I own a regional manufacturer. I budget for four full time salesmen plus myself. I currently have two open sales positions, one by choice and one not. I have been in business long enough to know that I am not going to grow or maintain my business without salesmen but ours sales are down. I need to rehire for my open positions but I am watching my expense very closely. My question is what do you think of 1099 salesmen versus fulltime salesmen with base salaries?” Anonymous
Anonymous, fantastic question in this economy. I will start with a high-level overview of the pros and cons of base salary plus commission and straight commission (1099) sales people. The pros of base salary are you have direct influence over your sales people and their activities. The con is the starts up costs are very expensive, especially if the new sales person doesn’t working out. Straight commission sales people are the exact opposite; the pros of straight commission are the low cost start-up and they only get paid when they sell. The con is the lack of control.
I have some qualifying questions. Being a regional manufacturer, what are your territories (geographically, product, industry)? Who do you call on? When you say 1099, I am assuming straight commission vs. adding distributors or independent sales people who rep multiple products? What is your sales culture? Are you current sales people above quota? How much training is needed for your solutions? How long is your sales cycle? Do you already have a candidate(s) lined up for the positions? How long have your positions been open? Are you currently profitable and even have the budget to re-hire your open positions? How much are you sales down this year?
Unless your industry (finance, insurance, distributors, etc.) is built around straight commission (1099) sales people, I would be cautious about moving to a straight commission model. I agree 1099 sales people are less expense in the short term but I would review the future impact on your business. In a good economy, it is hard to get quality straight commission sales people. In this economy, I am confident you can get a quality 1099 sales person but when the economy turns around will they leave or is this position a temporary job, while they are currently looking for another job. If you hire 1099 reps that are selling other solutions, how do you make sure they are selling your solutions and are they calling on the same buyers as you? How will this affect your two current reps? Will it motivate them to sell more; will they be looking for a job because they believed they will be forced to go straight commission; will your top guy when he learns of their comp plan, want to switch to straight commission, etc? Will you have channel conflict managing both base and 1099 sales people?
I have managed both base and straight commission sales people. My challenge managing 100% commission sales people was we sold large dollar solutions with long sales cycles. The challenge was the quality sales people didn’t have the discipline to manage their personal finances. They would get a big fat check that needed to cover them three months until their next big sale and a month later it would be gone and they were asking for draws. Then we spent more time managing them versus them making calls and selling.
One last comment, what are your opportunity costs having the two open territories? The easy answer is the economy for your sales being down, I would also review how you are covering the open territories and if you are covering with your two reps, how their territories are being affected.
Anonymous you have some tough decisions. Without knowing the details of your business model including your finanaces, I recommend making the decision based on getting through this current downturn. Because of the low cost entry point, you can try the 1099 sales person and see how it works.
Good Deciding and increasing sales in 2009. Reader Feedback, please click the comments below to give ‘Anonymous’ additional information and I want your feedback on my response. Shaun Priest aka CloserQ.
I want to wish you and your families a Fantastic Thanksgiving.
Anonymous, fantastic question in this economy. I will start with a high-level overview of the pros and cons of base salary plus commission and straight commission (1099) sales people. The pros of base salary are you have direct influence over your sales people and their activities. The con is the starts up costs are very expensive, especially if the new sales person doesn’t working out. Straight commission sales people are the exact opposite; the pros of straight commission are the low cost start-up and they only get paid when they sell. The con is the lack of control.
I have some qualifying questions. Being a regional manufacturer, what are your territories (geographically, product, industry)? Who do you call on? When you say 1099, I am assuming straight commission vs. adding distributors or independent sales people who rep multiple products? What is your sales culture? Are you current sales people above quota? How much training is needed for your solutions? How long is your sales cycle? Do you already have a candidate(s) lined up for the positions? How long have your positions been open? Are you currently profitable and even have the budget to re-hire your open positions? How much are you sales down this year?
Unless your industry (finance, insurance, distributors, etc.) is built around straight commission (1099) sales people, I would be cautious about moving to a straight commission model. I agree 1099 sales people are less expense in the short term but I would review the future impact on your business. In a good economy, it is hard to get quality straight commission sales people. In this economy, I am confident you can get a quality 1099 sales person but when the economy turns around will they leave or is this position a temporary job, while they are currently looking for another job. If you hire 1099 reps that are selling other solutions, how do you make sure they are selling your solutions and are they calling on the same buyers as you? How will this affect your two current reps? Will it motivate them to sell more; will they be looking for a job because they believed they will be forced to go straight commission; will your top guy when he learns of their comp plan, want to switch to straight commission, etc? Will you have channel conflict managing both base and 1099 sales people?
I have managed both base and straight commission sales people. My challenge managing 100% commission sales people was we sold large dollar solutions with long sales cycles. The challenge was the quality sales people didn’t have the discipline to manage their personal finances. They would get a big fat check that needed to cover them three months until their next big sale and a month later it would be gone and they were asking for draws. Then we spent more time managing them versus them making calls and selling.
One last comment, what are your opportunity costs having the two open territories? The easy answer is the economy for your sales being down, I would also review how you are covering the open territories and if you are covering with your two reps, how their territories are being affected.
Anonymous you have some tough decisions. Without knowing the details of your business model including your finanaces, I recommend making the decision based on getting through this current downturn. Because of the low cost entry point, you can try the 1099 sales person and see how it works.
Good Deciding and increasing sales in 2009. Reader Feedback, please click the comments below to give ‘Anonymous’ additional information and I want your feedback on my response. Shaun Priest aka CloserQ.
I want to wish you and your families a Fantastic Thanksgiving.
Comments
Just thought I throw some caution into the mix. Allstate Insurance got screwed big time on this issue.