Often companies are tempted to seek out "commission only" sales representation - an agreement where sales reps are paid only on the revenue they generate. But there are good reasons for avoiding commission only relationships. Many of the pitfalls associated with commission-only deals include legal, operational and management issues, as well as the cost of a damaged reputation.

On the surface, commission-only relationships may look like a winning proposition. Outsourced sales companies may offer to make products available to a network of sales and manufacturing representatives in the hope that they will promote the client's products. The programme costs the manufacturer nothing as those creative enough to move the product are compensated on their success, or failure, to find buyers for the product. There are, however, serious problems in trying to sell products through relationships such as these. Pitfalls that can end up costing more than most companies realise.

One danger is that commission only sales agents are working on a "nothing to lose" basis. They are often inexperienced and, as successful selling of the client's product or service may take some time, these sales agents can sometimes become desperate for a win and become liberal in their representation of products. Is it possible a sales rep, working for commission only, would misrepresent the products they are selling to close a deal? If they do, the soured customer relationship will be the company's problem. A company's commitment to its customers is key, and when choosing to use commission only sales reps, that key component is lost. There is little or no accountability of their actions.

It can also be impossible to "fire" a commission only sales rep for misrepresenting products, since the rep does not really have a job in the first place. All that can be done is to tell them to stop representing the product. For these commission only sales reps, there is very little downside to doing a bad job. This situation can turn marketing coordination into a nightmare.

There are legal and tax-compliance issues as well. In Europe it can be illegal to employ a person on a commission only basis if that person fails to earn the minimum wage. In most member states, the legal definition of a contractor is someone who sets a fixed price for a job in advance, such as a landscape gardener or plumber. It is not possible to get around tax law by calling a commission only sales person a "contractor". 

Anyone who spends the majority of their time working to promote a company's product or service, with the approval of that company, is considered an employee of the company. This means that regional government can hold the employer of a commission-only "contractor" responsible for payment of the minimum wage as well as the statutory employer-tax on all employee income, including any commission payments made to the sales person.

Should a relationship with a commission only sales person be less than positive, the representative has recourse to sue the company for failing to pay the minimum wage for his efforts. Risks such as these can quickly result in spiralling legal costs as well as high tax bills and fines.

I would appreciate hearing back other views on this subject , in fact generally on the amount of regulation our governments have loaded on our industries shoulders