In the Trenches: How to Use Commissions
Over the years, I’ve flirted with various commission structures for the people who work for me, and my views keep changing about whether it’s a good or bad way to offer compensation. I recently came to the conclusion that how I’ve used commissions in the past wasn’t very productive — and that I can do better going forward.
In the past, I’ve offered Cranky Concierge personnel a percentage of the commissions they earn by booking travel. This served two purposes: It helped me to pay lower base salaries, so I didn’t have to worry so much about cash flow in the early days of the business (because commissions weren’t due until the money came in the door). And it encouraged my people to present clients with options that would bring in the highest commissions.
But the latter reality created a problem. I don’t really want my people to steer clients toward certain airlines or destinations simply because they’ll receive more commission. I want them to help each client choose what’s best for the client. Now, when all else is equal, I’m for recommending the option that pays us better. But, first and foremost, we ought to make sure our clients are getting what meets their needs. Often, the two goals align, because our best partners not only pay commissions, but also provide more amenities. However, that’s not always the case.
Although I always explained my philosophy to new hires straight away, it contradicted the commission structure that I’d put in place. So, I’ve decided to move away from my old model and pay higher base salaries. Meanwhile, I’ve found a different, better way to use commissions.
We have an increasing number of small-business clients who we don’t really manage well. They sign up, and we basically help when they reach out to us. At the same time, we don’t do much prospecting for new customers. Both of these activities can work well under a commission-based pay structure: Bring more small businesses on board, and manage them well, and there’s money to be had.
This to me seems like the right way for Cranky Concierge to use commissions. I suspect, however, that it’s different for every business out there. What is your experience with paying commissions? Share your thoughts in the Comments field below!