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Many people know a sales representative’s pay depends on their skills, experience, and industry norms. But what also affects their cost depends on their pay structure too. To calculate how much to budget for your next sales representative, let’s start by looking at…

Common Pay Structures for Sales Representatives

There are different ways to structure pay for sales representatives. Some structures work better for representatives you want to bring on as full-time employees. Other structures work better for representatives you want to bring on as freelancers.

When deciding how much to budget, keep in mind that freelancers are businesses. Although they set their own pricing, your pay structure may affect their rates and whether they want to sell your product. So be open to negotiating different structures for the right sales representative. Here are some common pay structures:

Commission Only

The sales representative only makes money when they sell something. Although they bear most of the risk, some freelancers prefer it because the commissions are high. Unlike most employees, freelancers often have more than one income source so they can sell for others while they sell for you. This grants them more flexibility when starting up.

Commission Only Draw

A draw is an advance on future commissions. Before paying commissions, subtract any draws made. Draws allow commission-only sales reps time to learn your product and not lose stability, but you share some of the risk. Because if the salesperson doesn’t perform, you may not recover the draw. Many representatives find this plan attractive when the commission percentages are higher than if you paid a base rate plus commission.

Base Rate Commission

This is a common structure where the sales representative receives a base rate and a commission on top of that. You share some of the risk with the representative, while still freeing them to control their earning potential. And because of the base pay, the commission rate is usually lower than if it was commission only.

Base Rate Bonus

In this structure, you use the bonus as a performance incentive. Representatives receive a base rate and can earn bonuses for hitting milestones, maintaining a sales price, or selling certain products. This often works better for employees who are fully integrated into your business. Because it allows you to focus on certain areas of the business you want improved, and change the focus as needed.

Table comparing three ways to negotiate pay for sales rep and the reasons for each.

Budgeting for Experience vs. Talent

When searching for sales reps, it’s tempting to seek those with more experience. But don’t just look at their overall number of years selling. Look at the years they sold in your industry, or in the channel you need. Someone with five years of inbound phone sales experience has different skillsets than someone with 10 years of door-to-door sales.

Sometimes, budget constraints may require you choose between experience and talent. Many suggest you can compromise on experience, but you should never compromise on talent. Because a talented person can learn about new products and industries. But no matter how experienced a person is, you can’t teach drive and personality.