Sales Compensation: Full Commission vs. Salary Plus Commission

jordan stupar Jun 24, 2020

One of the most popular questions that I receive from sales people is: should I go into full commission sales or go with a salary plus commission sales job? At the end of the day, the right answer lies in your own personal tolerance for risk.

There are several benefits for each sales compensation plan and there are several drawbacks to each as well.

Benefits of Full Commission Sales Jobs

- Unlimited Earning Potential: As a full commission sales person, you'll never have a 'cap' on the amount of money you can earn! You'll be able to sell as much as you want and earn as much income as your heart desires. I personally know several full commission sales professionals that earn several hundred thousand dollars per year as well as a few that earn over seven figures per year.

- Freedom From Both Time And Space: More often than not, full commission sales people are '1099 Independent Contractors'. This means that the company they are 'employed' by is not allowed to mandate office hours, work schedules or, in some cases, performance requirements. Being a full commission sales person means that you'll be working from home, the beach, door to door, or wherever the job takes you.

- 100% of Your Commission Goes Into Your Bank: Nobody likes paying taxes! As a full commission sales person and a 1099 Independent Contractor, taxes are not taken out of your paycheck before it gets to you (unless you have specifically asked your employer to do this for you). Essentially, you get paid before the IRS does, which means you have an opportunity to write-off more expenses and deduct them - potentially mitigating paying more in taxes.

Drawbacks of Full Commission Sales Jobs

- No Sales = No Income: Unfortunately, full commission sales people do not get paid unless they are able to make sales. Cold streaks and sales draughts happen even to the very best of us at times. Underperforming sales people can expect the intense pressure that comes along with needing to produce and earn income. Unskilled or undisciplined sales people can also expect to have inconsistent pay periods which usually creates anxiety, anger and frustration.

- Less Management & Leadership: Since full commission sales people are not required to adhere to office hours or even show up to an office, they are often left to fend on their own. Of course, good companies make an effort to create resources for their sales people. However, due to the freedom that full commission sales people have, these sales people typically do not make training and skill development a priority.

-  Taxes: Although full commission sales people are paid 100% of the income they earn, they are responsible for paying their own taxes. This means that you'll be paying the IRS quarterly or annually and usually stroking a big check (which hurts!). In order to reduce your exposure to income tax laws, full commission sales people have to be very organized and disciplined.

Benefits of Salary Plus Commission Sales Jobs

- Reliable Income & Stability: As life progresses and we get older, we get married, buy houses, have kids and have financial obligations that must be met. Salaried sales positions offer the comfort of knowing that you'll have a check every Friday as long as you are employed. Many salaried sales jobs also offer additional compensation for sales performance.

- Management, Structure and Culture: Nearly all salaried sales positions are W2 Employee jobs. This means a more structured work environment and the requirement to adhere to company work hours and schedules. More than likely, companies offering this type of sales position will require you to report to a manager who will provide you with training and also inspect your ongoing sales performance. Additionally, salaried sales positions also allow you to enjoy company culture and the camaraderie of working with others.

Drawbacks of Salary Plus Commission Sales Jobs

- Limited Earning Potential: Nearly all salaried sales positions have an income cap. Since the company is already guaranteeing you a salary, they often reduce, cap or limit the amount of commissions you can earn. 

- Poor Performers Get Fired: Since salaried sales employees expect a paycheck each week, the employer will likely expect sales employees to consistently meet or exceed sales quotas, metrics and KPI's (key performance indicators). Of course, if you are not meeting these performance expectations consistently, you can expect to lose your job.

- Taxes: W2 Employees have a set percentage of their income withheld for taxes. This means that you only receive a set percentage of the income you earn, even on commissions. Salaried sales people also have less opportunities to write off expenses and deductions. But this does usually entitle you to some sort of tax refund during tax season.

The Conclusion: What Compensation Plan is Better For You?

I've personally been a full commission sales person my entire career (17 years!). Yes, I've experienced all of the drawbacks, pressure and anxiety that comes along with it but I've also enjoyed earning $500,000+ per year on several occasions which may have not been possible if I had chosen a salaried position. I'm also very tolerant to risk because of my personality and also because I've not had to take care of a family, children or necessarily need the financial stability that salaried sales job offer.

But, which compensation plan is best for you? Again, that's up to you! (Need more info? I made a video for you, here)

Either way you choose, you'll have to be skilled up, disciplined and focused to truly provide yourself with both financial security as well as job security. 

If you're looking for the newest and most effective approaches to selling in 2020, I'd like to invite you to check out the massive library of sales development content inside of Stupar Sales Academy. If you have any questions, feel free to email me directly - [email protected].

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