Rethinking the Traditional Model of Sales Hiring: An Innovative Alternative to Attract, Retain and Compensate Salespeople

The traditional commission structure is starting to show its age. For decades, sales professionals have been driven by base plus commission pay, a model that’s straightforward: the more you sell, the more you earn. But, is this approach still effective as more sales professional are becoming contractors and seeking more flexible sales roles and comp options?

At Salesfolks, we believed it was time for another option. So, we developed and deployed a hybrid model that blends a monthly retainer with performance-based commissions, designed to optimize both downside protection and upside rewards for sales contractors and businesses alike. Let’s dive into why traditional commission structures might be outdated and explore the innovative alternatives that can drive better results.

The Traditional Commission Model: A Double-Edged Sword

The traditional base + commission model is simple and appealing: salespeople earn modest paycheck plus a percentage of the revenue from their sales. It motivates performance, encourages competition, and rewards success. However, this model also has significant drawbacks:

Income Volatility: Sales professionals face income instability, with paychecks fluctuating based on sales performance. This can lead to financial stress and job dissatisfaction.

Short-Term Focus: The emphasis on immediate sales can drive short-term thinking, leading to aggressive sales tactics that may harm long-term customer relationships.

High Turnover: The pressure to meet sales targets can lead to burnout and high turnover rates, disrupting team stability and increasing recruitment costs.

Limited Collaboration: A competitive commission structure can discourage teamwork, as salespeople focus on individual goals rather than collaborative success.

Huge OpEx Risks: When you hire peramenent (e.g. W-2) sales employees, it often comes with huge financial risk exposure. It can take tens of thousands of dollars in recruiting and training, and 4-6 months to learn if a salesperson is going to work out (i.e. hit quota).

The Salesfolks Hybrid Model: A Balanced Approach

At Salesfolks, we’ve reimagined the commission structure to address these issues. Our hybrid model combines a monthly retainer with performance-based commissions, striking a balance between stability and incentive.

Monthly Retainer: Sales professionals receive a guaranteed monthly retainer, typically 10-35% of their monthly On-Target Earnings (OTE) equivalent. This base pay provides a modicum of financial stability, reducing income volatility and stress.

Performance-Based Commissions: The remaining 65-90% of earnings are based on submitted sales. This maintains the motivational aspect of commission-based pay, encouraging high performance and rewarding success.

Validated Learning: With this model you can evaluate the sales contractor and even try-before-you-hire. This model allows you to confirm that they are producing results and therefore you have proof-of-concept before moving into a permanent hiring relationship (if you choose to go that route).

Benefits of this Hybrid Retainer/Commission Model

Financial Stability: The monthly retainer offers a safety net, ensuring sales contractors have a predictable income stream. This reduces stress and allows them to focus on building long-term customer relationships.

Balanced Incentives: The performance-based component still rewards high achievers, but the blend of base and variable pay ensures that salespeople are not solely driven by short-term targets. So, you are likely to have better sales continuity.

Enhanced Collaboration: With a portion of their income guaranteed, sales professionals are more likely to collaborate and support their teammates, fostering a more cohesive and productive sales environment. At Salesfolks we support "Flexible Sales Teams" that typically start with one sales contractor hire, but then scale elastically over time.

Lower Turnover: Financial stability and a balanced workload reduce burnout and turnover, leading to a more stable and predictably productive sales team.

Less Expense: Sales contractors come with a huge bonus: minimum HR overhead. As indepedent contractors they manage their own career and sales practice. While you will still need to train and support them as necessary, you are not paying for benefits and other employee expenses.

Optimizing Downside Protection and Upside Rewards

The Salesfolks model is designed to align the interests of both sales professionals and businesses. By providing downside protection through a monthly retainer, we reduce the financial risk for salespeople. This allows them to take a more strategic approach to their work, focusing on building relationships and closing high-quality deals. The performance-based commissions ensure that top performers are still rewarded for their efforts, maintaining motivation and drive.

For businesses, this model offers several advantages. The stable income for sales professionals leads to lower turnover and higher job satisfaction, resulting in a more experienced and effective sales team. The balanced incentives encourage long-term thinking and customer retention, driving sustainable business growth.

Looking Ahead: The Future of Sales Compensation

As the sales landscape continues to evolve, it’s crucial to rethink traditional compensation models. The Salesfolks hybrid model represents a step forward, blending financial stability with performance incentives to create a more balanced and effective approach. By aligning the interests of sales professionals and businesses, we can foster a more collaborative, motivated, and successful sales environment.

While the traditional base plus commission structure has served its purpose, it’s time to explore innovative alternatives that better meet the needs of today’s sales professionals and businesses who want to be sales contractors and want to hire sales contractors. The Salesfolks model offers a promising path forward, providing the benefits of both stability and performance-based rewards. As we continue to adapt and innovate, let’s aim for a future with better sales comp options.

Are Sales Contractors Exempt?

NOTE: The following is not legal advice and you should seek legal counsel if you have specific questions as to whether a salesperson you wish to hire would be considered an employee in the juridictions in which you operate.

California Legislature passed a major law that substantially changed the way company’s doing business in California determine if workers are independent contractors (ICs) or employees. The law, Assembly Bill 5 (known as AB5), was signed into law by California Governor Gavin Newsom on Sept. 18, 2019.

AB5 states that in California, “,,a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

A. The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

B. The person performs work that is outside the usual course of the hiring entity’s business.

C. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

One of the several categories exempt from the ABC rules is, “a direct sales salesperson as described in Section 650 of the Unemployment Insurance Code (UIC), so long as the conditions for exclusion from employment under that section are met.”

Salespeople have a long held tradition of self-direction of their sales activities. Many are identified as ICs (contractors, freelancers, consultants) and there is a long history of salespeople being compensenated in whole or in part based on their sales performance.