Why it’s Hard to Make Commission-Only Sales Models Work

Ah, the good old days of commission-only sales. Once upon a time, in a world where dinosaurs roamed (okay, maybe not that far back), the commission-only sales model was widely prevalent. Picture this: a stable company, a vast market ripe for the picking, and a sales playbook so proven it might as well have been chiseled on stone tablets. In that golden age, businesses could attract sales talent with the promise of unlimited earnings, as long as they were willing to live or die by the sword of their own sales prowess.

Take the storied clothing retailer Tommy Bahama, for instance. Their enterprise sales team includes commission-only warriors who have been donning Hawaiian shirts and selling luxury brand's clothing for the past couple of decades. These salespeople were able to thrive because the brand was bespoke, the market was hungry, and the compensation plan was as predictable as a sunset in Maui. Sure, there were some ups and downs with the economy, but a good salesperson could always make their “nut,” or in less colorful terms, they could earn a decent living.

But Times Have Changed, and So Has Sales Compensation

Fast forward to today, and the sales landscape has transformed into something quite different. The commission-only model, once a beacon of entrepreneurial spirit, is now more like a rickety old bridge—still there, but not something most people would want to cross.

Why the shift? Let’s break it down:

The Insecurity Blanket Commission-only jobs offer the thrill of unlimited potential earnings—along with the very real possibility of earning zero dollars in any given month. For most sales professionals, the excitement of the former no longer outweighs the terror of the latter. In today’s volatile economic cycles, even the best salespeople crave a little security. After all, it’s hard to focus on closing deals when you’re wondering if you’ll need to sell your car to pay rent.

Complexity Is the New Black Gone are the days when a simple pitch and a handshake could seal a deal. Today’s sales processes are intricate, involving multiple decision-makers, extended sales cycles, and an ever-evolving array of technologies. This complexity demands more than just a natural-born salesperson; it requires training, support, and yes, a stable income to keep that top talent from bolting for the nearest cubicle with a steady paycheck.

The Battle for Talent Competition for top sales talent is fiercer than ever, and the best candidates know their worth. They’re not just looking for a job; they’re looking for a career with growth potential, benefits, and, let’s be honest, some assurances that they won’t end up living in their parents’ basement if the economy takes a nosedive. The commission-only model simply doesn’t appeal to most of these A-players anymore.

In addition, back in the day, when a single salesperson did it all themselves, they knew they would sink or swim on their own efforts. Top-tier sales professionals know that today's sales funnel requires an entire team of marketers and sales experts to make the flywheel turn. It takes a village. And with this interdepedence comes more individual performance risk. Back in the day, when a single salesperson did it all themselves, they knew they would sink or swim on their own efforts.

The Netflix Effect Remember when people used to buy and watch their movies on DVDs? Just as Netflix changed the entertainment industry, the shift in sales compensation reflects broader societal changes. We live in an on-demand world where people expect a certain level of comfort and predictability—yes, even in their paychecks. Commission-only feels like waiting for a Blockbuster to have your favorite movie in stock. Outdated, inconvenient, and not worth the risk.

The Modern Approach: OTE to the Rescue Enter the hero of our story: On-Target Earnings (OTE). This compensation model combines the stability of a base salary with the performance incentives of commission. It’s like a safety net for sales professionals, ensuring they don’t fall into financial ruin if they have a bad quarter while still motivating them to go after those high commissions.

Here’s why OTE works:

Stability Meets Incentive The base salary provides a cushion, covering essential expenses and giving salespeople the peace of mind to focus on their jobs. Meanwhile, the commission component ensures that there’s still plenty of motivation to hustle, hit targets, and bring in the big bucks.

Attracting Top Talent Offering a base salary opens the door to a wider pool of candidates, including those who may not have the stomach for commission-only but are still highly driven and capable. Companies can attract and retain top talent, ensuring that their sales team isn’t just good, but great.

Retention is the New Recruitment Happy, financially secure salespeople tend to stick around. The OTE model reduces turnover by providing consistent income while still rewarding top performers, creating a win-win situation for both the company and its sales force.

Flexibility in an Ever-Changing Market OTE allows companies to adapt their compensation strategies to changing market conditions. If the economy takes a hit, the base salary offers protection, while the commission can be adjusted to reflect new realities without completely abandoning the incentive structure.

Conclusion: Farewell, Commission-Only; Hello, OTE

The commission-only sales model had its day in the sun, but like bell-bottoms and disco, its time has passed. In today’s complex, competitive, and uncertain world, OTE provides the balance between risk and reward that modern sales professionals need. So, while some commission-only veterans may continue to thrive, the rest of us are better off embracing the future with a paycheck that offers both stability and the promise of something more – a comp model that has downside protection and upside opportunity.

After all, it’s hard to sell if you’re worried about keeping the lights on.