Using the 100 percent commission model may seem like an easy way to save money, but the numerous hidden costs associated with sales rep turnover will actually end up costing you more money in the long run. In addition to a fiscal loss, there are various intangible opportunity costs that may negatively impact your company culture and performance. Before implementing the 100 percent commission model, learn what these costs are and how they will affect your company.
A 100 percent commission based sales rep, in essence, is working as an entrepreneur – willing to risk loss in order to get a greater return based on performance. First-time entrepreneurs have only an 18 percent chance of succeeding. Why would we expect anything more from 100 percent commission sales reps? At Naviga, we have seen this turnover happen first-hand. In the early years of our business, we relied heavily on 100 percent commission – and routinely had to re-hire 3-6 months later. These turnovers occur because many people can’t maintain this type of lifestyle. Closing a big deal doesn’t happen overnight. It requires weeks or months of calling and prospecting, and a lot of persistence. Combine these actions with the risk of potentially not getting paid for your efforts, and it will oftentimes prove too much for a person to handle.
Most companies with a 100% commission model end up hiring many more sales reps than needed because of the expected fall out of non-performing reps. Using this type of elevated hiring model will directly lead to higher costs. The entire hiring process becomes costly because it has to be repeated many times as turnovers occur and on a larger scale, since you are hiring more sales reps than needed. These costs come in the form of placing job ads, hiring recruiters, and time for interviewing candidates. Onboarding and training costs will also add up quickly as turnovers occur.
Not only does high turnover increase the cost of your hiring process, but it also creates opportunity costs that could have an even greater negative impact. Specifically, a culture of churn and burn leads to low employee morale, even for those performing well. This low morale affects everyone and will disrupt the culture of your company. Another impact of high turnover is losing out on customer opportunities by having poor performing reps as the face of your business. Reps that are too eager to sell will often rush the sales process and scare off potential customers. Finally, the time spent by managers working with a steady stream of new representatives could be better spent planning sales strategies and developing the existing team.
Before making a final decision about what model to use, it’s important to take the turnover rate into consideration. Having some employee turnover is inevitable, especially in a stressful work environment like sales, but a high turnover rate can cost your business money and produce unproductive and unsatisfied employees.
What experiences have you had using a 100% Commission Model?
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