Sales Ethics, Sales Commission and Pure Commission...

If you are an employer, Dan Joy, Inc. advocates respect, appreciation and fair compensation for your sales and marketing team. They have a difficult job to do, are the lifeblood of the organization, and deserve your full support and cooperation at all times. Likewise, we urge all salespeople to be conscientious, dedicated and loyal to their employer, and discharge their responsibilities with the highest degree of ethics and professionalism.

Selling is one of the TOUGHEST Professions in the World: Yes, a Sales job is one of the toughest jobs in the world! Here's why: Sales is probably the ONLY Profession in the world where at the end of the day, despite a person's best efforts, the end-result (i.e., the decision to buy or not to buy) is not in that person's (salesperson's) own control. Someone else (the prospect) determines the final outcome. It is not like Manufacturing where you can simply decide you want to make 100 widgets a day then go ahead and produce them. A salesperson can say and do all the right things, work diligently towards a sales goal, and still not have much to show for it because the sale did not close due to any of thousands of possible reasons beyond the salesperson's own control. A sales job is not only physically demanding but emotionally draining. It takes a very special individual to still keep going at it even after a thousand people have already "closed the door in your face". Good salespeople are rare. Once you do find them they are to be respected, admired and rewarded for their skills, mental toughness and the ability to persist in the face of constant rejection.
Note: If your sales team has to try too hard or resort to "begging" for orders, often cutting prices drastically in order to land the sale (at low profit margins) then your company probably has poor branding, weak positioning, a feeble sales posture, ineffective leads generation, substandard sales tools, improper internal systems and/or inadequate training. Just hiring good salespeople might not solve the problem. Please see Consulting.

Sales Traps: Some employers have concocted creative phrases to lure good unsuspecting people into a life of sales drudgery, such as "Reverse Commission", "We Pay for Performance", "Draw Against Commission", "There is No Limit to what you can earn working for us", etc. As for that last one, even if there is no limit (no cap) on the commissions in theory, in practical terms there is always a limit because landing and servicing an account takes time and effort, and there are just so many hours in a day. Then there is the classic pyramid scheme / multilevel marketing (MLM) trap: "If you recruit "X" people, then each of them recruits "X" people, who in turn recruit "X" people each... you will make a Billion Dollars in commissions alone". There is just one problem with that. If you carry their calculations to the ridiculous extreme and temper it with the reality of market potential and closing ratios, you may discover that you would need a population of 4 Trillion people (prospects), and a timeline of 75,000 years to accomplish that goal. Since the entire population of our planet is about 6 Billion people, unless you plan to hunt for intelligent life on other planets (and live for thousands of years), chances are that you won't make that goal of earning a Billion Dollars working on pure commission in a pyramid scheme, not to mention the fact that certain pyramid schemes are also illegal. However, the owners of the company might make a Billion Dollars if they can find enough unsuspecting people to believe in their "fairy tale" and buy their products upfront.

Pure Commission Usually Equals Pure Exploitation: A good salesperson should never work on Pure Commission for someone else (with one exception, as explained below). However, an incentive component (Bonus, Commission and/or Equity) IN ADDITION to a guaranteed fair and livable Base Salary may be fine. If you are good at selling, and comfortable working on pure commission, you should probably start your own business, which brings us to the "exception" mentioned above. If a company pays a salesperson a guaranteed livable wage (fair compensation) for an initial trial period, then helps that salesperson establish and run their own business by using the company's name, systems, sales leads, licenses, goodwill, branding, etc., then it might be a fair deal. What makes it fair is that a). The company paid the salesperson a guaranteed livable wage during the initial trial period where both the company and the salesperson got an opportunity to test each other out, b). There is no compulsion or coercion for the salesperson to continue selling for the company once the initial "paid" trial period ends and the "pure commission" period starts, c). No upfront purchase or financial investment is required on the part of the salesperson, d). The salesperson can contribute his or her own "sweat equity" but use the company's brand, systems and knowledge (which the company might have built after spending sizeable sums of money over a long time) to run what is pretty much the salesperson's own business, and e). The salesperson can get out of the arrangement easily at any time, without any penalty, if things don't work out.

Pure Commission Hurts the Society, and Weakens the Nation: When honest, hardworking salespeople cannot support their families and maintain a decent standard of living, the consumer debt (e.g., credit-card debt) goes up, home foreclosures and loan defaults increase, stress increases and can lead to health problems and broken families, kids suffer, and crime increases. In the end, the salesperson, the company and society at large can suffer due to an employer's greed of not wanting to pay a fair living wage. If you are good at selling, you already possess a rare combination of skills and mental toughness, and many good employers will be willing to reward you well for the same.
a. "Pay for Performance" may be acceptable only if it is a guaranteed pay for results which are absolutely in the salesperson's own control. For example, if a company wants to pay you a certain fair and reasonable amount for each phone call that you make or each email that you send, that would probably be fine because the outcome (number of calls or number of emails) is directly under your own control. However, if a company wants to pay you pure commission based only on the number of orders or amount of sales, it is not the same thing, as the final outcome (sale) is not in your own hands, but in the prospect's control. A certain number of sales don't close despite the salesperson's best efforts, and it is not fair to penalize a salesperson for the same.
b. A "Draw against Commission" for a fixed term (for example, 6 months) may be acceptable only if the company is already paying a guaranteed fair living wage (Base Salary) on which the salesperson and her/his dependents can survive decently and comfortably, and where the Draw is just an added incentive to work harder and perform better. They key point here is that the Draw should be IN ADDITION to a fair and reasonable guaranteed Base Salary, not to compensate for a low salary or for the lack of a salary. If the Draw will be "forgiven" after a certain length of time (e.g., 6 months) and will eventually not be refundable, it may be fine. If you are a salesperson, the stipulation can be that if the company terminates your employment for "no cause" during the Draw period then the Draw would be forgiven, but if you leave voluntarily during the Draw period then you can agree to pay it back. Any Draw against Commission which makes you indebted to the company long term or locks you into a dead-end sales job is a definite "no-no". As a good sales professional, you should not have to pay any employer for the privilege of working for them! Remember, a Draw should be IN ADDITION to a fair and reasonable guaranteed Base Salary, not to compensate for a low salary or a lack of salary.

Pure Commission Hurts the Employer too: Trying to hire a good sales professional on pure commission is like the farmer saying to the land, "Give me the crop first. If I like it, then I shall put in the seed". That is not how it works. It is a law of nature that you must sow before you can reap. Successful, market-savvy businesses reward their business development professionals well. Good salespeople are few and far between, and there is intense competition for good sales talent. Hiring substandard sales talent on pure commission is self-defeating in the long run, especially after you figure in the constant personnel turnover, recruiting / training / re-training costs, the loss of continuity and sales momentum, and the costs of lost opportunities. The salespeople who agree to work on pure commission are either new to the profession (and will most probably leave when reality sinks in) or desperate (it is never a good idea to try to benefit from someone else's misfortune, because what goes around does come around). In the end, we'll all be answerable to the Highest Authority above, i.e., our Creator. Please do the right thing as an employer. Be fair to the hardworking folks who keep the wheels of commerce turning -- your salespeople! It is also the Golden Rule: "Do unto others as you would have them do unto you". Good sales people and sales leaders are hard to find, because there just aren't that many of them. Once you do find those rare individuals, please treat them well.

Whose Fault is it When it Doesn't Sell?: Sometimes, when a product or service does not sell as well as envisioned, the salesperson might not really be at fault, but rather the company's own product, service, reputation or lack of quality, improper positioning, weak branding, incorrect pricing, the management style of the company, competitive market conditions, lack of understanding of the "Science of Marketing", inadequate sales tools, ineffective leads generation, general state of the economy, etc. Just hiring good salespeople might not solve the problem, unless the core underlying issues are also addressed and fixed. Please see Consulting.

Sales Ethics is a 2-Way Street (Salesperson's Responsibilities): Good and ethical sales professionals respect and uphold the trust that their employer places in them. They work hard, diligently, honestly and efficiently, and always represent their employer in a professional, conscientious and ethical manner. Good and ethical sale professionals upgrade their skills through training and learning. They continually strive to improve their sales performance to benefit their employer. Ethical sales professionals do not "moonlight" or work for another employer on the side or engage in any side business activities where a breach of trust, conflict of interest or leakage of confidential information of their employer might occur. They utilize their time effectively in the sincere and honest pursuit of their employer's sales goals (the Cosmic Law of "What goes around comes around" works both ways). "Sales" is a tough but rewarding profession. Anyone who does not give it their personal best or cuts corners on diligence or ethics does not deserve to be in the Sales profession.