Common Sense Rule (CSR) Number 2: Don’t Cap Income!

This sounds like a no-brainer doesn’t it but you would be shocked at the number of company presidents/owners who place a limit on what a salesperson can earn. Talk about a misguided philosophy! I’m sure someone has done a study about salesperson turnover at companies where earnings are capped. If anyone has that info please pass it along.

Why do leaders of companies cap incomes? Couple of reasons. They’re naive about sales realities. To many leaders it just seems ludicrous to have a salesperson make more than they do. Some leaders are shallow-they are perfectly willing to ride the wave of sales all the while basking in their income numbers. No doubt there are more reasons but that isn’t the focus of the post.

What happens to salespeople when their incomes are capped? (When I say capped I mean that salespeople won’t make over X amount of income annually.) The obvious result is “demotivation”. Imagine sitting in your cubelet in September looking at your YTD sales knowing that no matter how much more you sold before the end of the year you weren’t going to make any more than $90K. Dust off the golf clubs boys, we can get 30 rounds in before the snow flies!

If you don’t think that doesn’t happen you are naive. I know very few salespeople who are so altruistic that they will continue working their butts off when they know that more sales won’t result in more income. If you think about capping and you believe what I wrote in the last sentence don’t you wonder why leaders do this? They actually hurt the  company’s bottom line by not letting the salespeople earn as much as they can.

There is an interesting flip side to this. If you’re a company owner/CEO and you have capped salespeople’s income and you have had little or no turnover guess what’s happening? You have a group of salespeople on your payroll who are essentially lazy. They are making enough to pay the bills but they don’t have the drive to earn more. In short they are satisfied! Satisfied is not a word you want to see attached to a salesperson or sales organization. That smacks of complacency.

One more little bit of wisdom on commission structures. Some companies in theory have an “uncapped” commission plan but upon further review the plan is really capped. Here’s how that little sleight of mind works. Prior to a large commission percentage kicking in (usually toward the end of the fiscal year) the salesperson needs to reach a certain plateau in sales. If that plateau is not reached then the larger commission percentage does not kick in. A company can set that plateau at artificially high levels so either the higher rate is never reached or it’s reached in December with limited time left to make larger commission dollars. And when is the plateau number introduced? Why January of course at the national sales meeting when everyone is optimistic, there are no back orders, new products are on the horizon, and the sales manager says that the numbers are a lock this year!


2 thoughts on “Common Sense Rule (CSR) Number 2: Don’t Cap Income!

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