How Can I Avoid the Pitfalls of Paying Commission?
I will be running my windshield-repair business. I'm a university student and plan to hire students for summer jobs. My vision is to have each one run a kiosk as if it was his or her own micro-business. I am uncertain of what my first months' revenues will be, so I'm looking for ways to pay my employees commission. But I don't want disappointed employees if the revenues aren't as good as expected.
Join us at Entrepreneur magazine's Growth Conference, Dec. 15 in Long Beach, Calif. for a day of fresh ideas, business mentoring and networking. Register here for exclusive pricing, available only for a limited time.A business owner can't do much to avoid the pitfalls of paying commissions, apart from capping them or not offering them at all.
You sound as if you're considering commission-only positions. In this case, I'd say cap the commissions and offer hourly pay. While this approach has its drawbacks, the advantages are simple. Everyone earns more money. There is greater motivation to make money and more excitement in doing the job.
Businesses with limited funds often want to control costs as much as possible. The best way to do that is to offer a compensation package to independent contractors that allows them to make a bigger portion of the pie, so that they are motivated to work harder on filling their sales pipeline and producing sales. This way, both sides win with a share in the revenue.
If the sales project could be run as their own micro business, it could be an opportunity for them to test the waters of entrepreneurship.
When you hire people, make sure they understand the job is a "vested" position in that they will be responsible for the production of sales. When you offer the commission, make sure they understand that the sooner they get out there and start finding customers, the sooner you all will make money.
This should be the big focus for helping them to understand that this position could be a better deal than a regular job.
If someone wants to really be invested in the deal, he or she may produce enough revenue to become a partner down the road. That means more capital via profits to build your business.
If you want to build a business on commission-only sales or even commission plus hourly pay, one drawback is when they aren't making a lot of money, you will have to spend time with them to find out what they are or not doing to increase traffic to their kiosk or why they aren't calling on places or people to get referrals. When they are earning a lot of money, they'll be happy and will be easy to motivate.
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