Here in Raleigh, the N.C. State Fair wrapped up this past weekend. New junk food included Jalapeño Cheetos Bacon, Pumpkin Spice Latte candy apples, and Deep Fried Meatballs.
Those all might seem like a good idea, but you’re likely to regret it later… kind of like hiring a commission-only salesperson for your agency.
Commission-only sounds appealing—after all, you get sales help with zero overhead. But be careful—making it work is a lot harder than it looks.
Commission-only sales = Junk food?
One of my agency consulting clients recently asked:
“We’re considering working with an experienced salesperson to do work for us on a commission-only basis. We’ve known her for several years. She’s suggesting her commission be 30% of the first twelve month’s contract, paid up front. How does this rate fit with what you see elsewhere?”
The right salespeople can be a huge boost to your agency, but commission-only rarely goes as smoothly as you expect.
Let’s look at the risks of hiring a commission-only salesperson at your agency, how you might mitigate those risks, and whether those example numbers make sense.
Be careful about commission-only sales
First, weigh why you’re considering a commission-only salesperson. This approach may not be aligned with your long-term goals.
Agencies often hire their first salesperson (usually on salary plus commission) when they hit ~20+ employees (or sometimes sooner, if the owner hates selling). If you’re smaller than 20+ employees, it may be too early.
If you’re larger than 20+ employees, I wonder why you’re not hiring a more traditional salaried salesperson. Commission-only might be “penny wise, pound foolish.”
Second, run the numbers on what success—and failure—would look like. Here are three questions to answer before you hire a salesperson. They look at the impact on profits and capacity, as well as how the prospective salesperson might perceive the comp plan.
Third, never pay anyone their full commission in advance. This is important for any sales role—if the client fires you, you’ve lost the revenue and the commission. In theory, you can have a “clawback” clause, but good luck collecting, especially if the salesperson has since quit.
Why to be skeptical of commission-only
I’m skeptical of salespeople who pitch “commission-only” to agencies. Good salespeople have options, including demanding a base salary.
If you still want to explore commission-only, there’s more to consider. To start:
- Is the salesperson an employee or a contractor?
- Is s/he exclusive to your agency, or are they selling for others? If non-exclusive, how does s/he decide which leads go to you versus a competing agency?
- Is there a sales quota? What if s/he doesn’t meet the quota?
- What’s his/her role on check-ins as the new client starts (as a double-check on the day-to-day account manager)?
- What’s his/her role handling (if any) shepherding renewals, as a full-time salesperson would normally do?
- Is s/he doing 100% of the prospecting? What if s/he closes a lead you hand him/her?
- What’s their scope overall? Are they doing full-stack prospecting, qualification, proposals, and closing?
- What’s your signoff on pricing they offer? Are they marking-up your rates to cover their fees?
- What’s your recourse if they do something that hurts your agency’s reputation?
When my clients have tried commission-only before, they tend to be dissatisfied with the results—typically because the salesperson hits roadblocks and gives up because s/he isn’t getting any money.
A few months after that point, you finally realize the salesperson has quit selling on your behalf, and your pipeline is now dry. In contrast, you would have been having weekly “sales management” chats with a salary+ salesperson, reviewing progress.
Commission-only sales vs. Fees to referral partners
A commission-only arrangement is similar to how you might structure paying a 5-10% referral fee to other agencies. But it’s different in a key way—you’re expecting a commission-only salesperson to be actively selling on your behalf.
In contrast, you don’t rely on each referral partner to send you a constant flow of business, as a salesperson is supposed to do.
Tip: On a related note, build a diversified “stable” of referral partners, so you don’t become overly reliant on any one partner.
Creating the sales comp plan
As I mentioned, experienced salespeople tend to have options, including demanding a healthy base salary plus commission—so I was curious why my client’s prospective salesperson was proposing 30% commission-only.
A more typical agency sales comp plan would be a base salary of, say, $75K plus a ~10% commission on the first year, and perhaps 5% in future years, with commissions paid on a monthly basis while they’re an employee of the agency, and with a certain sales quota. (The base typically depends on your location, the services your agency sells, and the current market for sales candidates.)
In my client’s example, a 30% commission is technically reasonable for commission-only sales, especially when capped at a year of revenue. But as I mentioned, never pay 100% in advance—it’s a major mismatch on incentive alignment, particularly if the client cancels mid-year on a retainer.
You’d want to run the numbers to make sure that 30% truly works for you, too. Even without a base salary, that’s a huge chunk of your profit margins—and probably not a chunk you’ve budgeted for at your current pricing. For instance, would s/he be selling $100K a year or $1 million a year?
Be careful. The right salespeople can be a huge boost to your agency, but hiring a commission-only salesperson rarely goes as smoothly as you expect.
To help you make better sales decisions—like avoiding the Jalapeño Cheetos Bacon—here’s my advice on hiring salespeople, three questions before your next sales hire, and tips on structuring your agency’s sales process.
Questions: How do you handle staffing the sales role(s) at your agency?