I was discussing the compensation plan of a reasonably new company with its national sales director the other day, and for a very intelligent guy he sure sounded dumb.

We pay 10% commission, he asserted, though my math indicated it was 7.5%.

(These differences add up when youre speaking of thousands of dollars on every deal.)

I asked him if he knew whats typically paid in straight commission situations.

He said 10%.

Wrong, again; its closer to 20%, and 25% and 30% are not unheard of, especially if youre speaking about paying an outsource company.

Straight commission deals mean salespeople are taking on tremendous risk. If they sell, they eat, and if they dont theyre blamed for their own ineptitude.

When in truth, its very possible that selling that product or service is like finding needles in haystacks; very difficult and very speculative.

If companies felt they had the numbers down to a science, or that demand for their product was solid, theyd be able to model what constitutes good, better, and best performance, and then offer salaries plus commissions, or salaries plus bonuses, or even draws against commissions.

In effect, theyd be bankers, financiers. Most mature, proven companies are in the money business, though, nominally their signs say they sell vacuum cleaners, burgers, or insurance.

They happen to sell what they sell because they believe they can earn a better return on their investment with Albuquerque real estate than with car washes. Otherwise, as sober businesspeople, they couldnt care what they do for a living, providing its honest.

The sales managers excuse for not adjusting the compensation plan is that I was hired this way, and everybody else is, too! In other words, despite the fact the firm is just a few years young, its already falling back on the line, Weve always done it this way!

Horse feathers!

Arguing to tradition is the most common way of resisting change. It presumes: (1) How something came to be must be the best way it could have been done; and (2) The results youre getting now, are adequate.

If you really go back to first causes, youll find compensation plans were designed on completely speculative grounds. The products hadnt been sold by anyone but the founder, and it wasnt known whether anyone else could do it, and if so, with what rates of success.

Therefore, after a few years its always a good idea to revisit the plans and to ask if theyre working.

Specifically, is a 7.5% commission rate enough of an incentive to attract, motivate, and retain top flight salespeople, given the known difficulties and challenges of selling this product?

And to answer this, you dont have to fly by the seat of your pants. Look at recent pay stubs.

Are your sellers making an excellent living, are sales booming, and are you awash in money?

If not, if youre just plodding along, getting by, its time for revision, and the fact that youve always done it a certain way, is just an excuse and an obstruction to making progress.