5 Things I Realised When I Moved From Fixed Salary to Commission-Based Pay

I recently came across a post by a prospective employee who was caught up in the dilemma of either choosing a commission-based job or having a fixed-income contract. 

For years, commission-based jobs were the preserve of the sales and marketing department. However, more employers have embraced the idea of pay based on agreed deliverables. For instance, you could be hired as a chef and receive pay as a share of the number of meals you prepare and sell. Some employers prefer this arrangement because they have been found, in some cases, to boost productivity and reduce overheads that have no monetary benefit to the company. 

At the same time, some employees prefer this working model because it allows them more freedom to manage their time and even actively participate in determining their pay. During my career, I have had a chance to work on a salaried-job contract and a commission-based arrangement - here are the lessons I have learned. 

Also Read: Money and Me: Friends & What Not to Do on a Salary

There is No Cap to the Money You Can Make

You can make all the money you want if you do the work. This is especially so if you are a workaholic with an entrepreneurial spirit. If you are in sales, there is rarely a cap on the commission you will receive - as long as you keep bringing in business. 

The business environment will vary. Indeed, some products or services are harder to sell than others. However, the principle remains the same, and if you are talented enough to deliver on the deliverables upon which your pay is based - then the sky is the only limit. 

Some contracts will allow you to work with different clients at the same time - increasing your sources of income and negotiating power. For example, if you are an accountant who is not attached to any specific employer, you can offer your services to multiple clients - negotiate and receive pay based on the work needed by each client. 

Self-Discipline is Critical 

One of the benefits of working on salaried terms is that many times many organisations will have systems that are structured to ensure you remember to meet your deliverables. 

You probably have to check in at the door, write an email when you have to be away from work, have limited vacation days, and there is a well-defined payday. However, most of these structures do not apply in the context of payment based on a deliverable.

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If you are paid on a sales commission, your employer will be unlikely to spend time following up with you knowing fully well that they only pay when you have sold something (often much bigger than your share). Thus, having self-discipline and a personal accountability system is critical when your payment terms are linked to a deliverable. 

There will be times when you will wake up and feel like going back to bed. There will be long tasks that will make you want to give up and there will be days when you will get a windfall and want to take a three-month holiday - after all, you don’t owe anyone anything, right? 

The reality, however, as Eliud Kipchoge, reminds us - is that only the disciplined are free. If you let your impulses control you, there will be pain in the end because you will probably go for months without an income or even partners will not want to work with an unreliable person - even though you were never on their payroll. 

Motivation Gets a Boost

The fact that output is directly rewarded increases motivation. There is more ownership of the responsibilities because they are directly tied to your remuneration. A common challenge with having a fixed-salary arrangement is that there will be times when you go over and above your job description. 

Your insight or hard work could see your employer earn twenty times your salary within a day. However, some employers do not have a bonus programme and with your midas touch, you will still get the same salary that your deskmate, who faked sick off for two weeks, gets. 

I am digressing to the story of difficult employers but the point is - when your payment is tagged on an agreed deliverable - you do not feel used or underappreciated. What you bring is what you get, and this generally has a positive effect on your level of motivation. And of course, a motivated being is a happy being!

Your Patience Will be Tested

The old adage goes that patience is a virtue. When working on commission-based jobs, there is greater demand for patience than with a salaried engagement. 

Whether in sales, in business, or as a freelancer, the flow of income is greatly affected by multiple factors that can test the limits of your patience. For example, working as a real estate agent typically pays a 2-5% commission out of the sale amount. With this arrangement, a Ksh20 million transaction will pay you up to Ksh1 million. Sometimes the deal will come easily, but the reality is that nothing in life comes easy. 

Real estate transactions generally take a long time to materialise. If you are not patient, you could become those types of people who are perpetually waiting for “deal iivane niomoke”. The same applies to many of the commission jobs. Organisations, especially those involved in business, often have longtime mitigation strategies which allow them to continue operating for years without profits. Thus, when unforeseen circumstances hit, they are able to remain afloat. 

This was the case with the Covid-19 pandemic where most businesses merely restructured pay for their salaried employees after a near-economic shutdown. The story was different for freelancers, small businesses, and other professionals who work on commissions. 

Have a Back-Up; Something Is Likely to Go Wrong

The fact that there is no cap on the amount of money you can make also means there is no guarantee of the minimum amount you can make. Sometimes, the poor pay will be no fault of your own. 

Consider the case of a real estate broker who, after months of chasing a seller for a multimillion property, realises that there are legal issues blocking the sale. Or that car importer faced with delayed port operations - after taking a short-term loan to ship the vehicle on behalf of a client who promised to pay once the car was in the country. In other cases, illness strikes - blocking you from doing your routine work for months - and since your pay is tagged on deliverables - you go for months without pay. 

It is therefore important to create a backup structure that ensures foreseeable risks are easily mitigated. For example, you can take personal medical insurance coverage to avoid the financial challenges of paying huge amounts of cash for medical emergencies. 

Read Also: 6 Consequences of Not Having an Emergency Fund

Access to finance is often easier for salaried employees. Financial institutions often have agreements with employers and an employment contract will sometimes get you a quick cheap loan. The same latitude is not always extended to those whose pay is pegged on a deliverable. 

However, there are ways you can create a backup plan for quick-affordable loans including maintaining healthy savings, having easily-disposable assets in the event of an emergency - or investing in assets that can easily be used as collateral on a rainy day.

Read Also: Loans: How do I Prove my Income if I am Self-employed?

Personal Development is Your Responsibility

Salaried employees often take for granted regular training and mentorship from employers. However, when you are working a commission, it is your responsibility to plan your time and resources to stay updated on the current market or career developments. 

Whether you are a doctor, a farmer, or even a property agent - there is always a competitive edge when you have better market intelligence or are aware of the trends that affect the bottom line. 

You probably have heard the story of a wealthy business owner who went back to get a second degree in school and wondered, why do they need academic papers? Well, it is all about teaching yourself new skills that keep you at the bottom of the skill

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Should you Switch to Commission-based Pay? 

Commission-based pay can be a great avenue to achieve financial freedom and live a higher-quality lifestyle. They have the benefit of flexibility, higher motivation, and more earning potential, among others. 

However, not everyone is cut to do these types of jobs and it is important you do a personal evaluation if you are in a dilemma on the type of pay arrangement to choose. 

Entreprenuerially-gifted people and workaholics are more successful in commission-based jobs because they see more opportunities independently. The same applies to people who are able to shun impulses and engage in self-discipline and accountability. Some of these traits come naturally to some people compared to others - but the good thing is that they can all be learned through consistency and hard work. 

On the other hand, if you are a person who is risk-averse and comfortable with certainty, these jobs may not be ideal for you and there is nothing wrong in wanting to have a predictable salary - it's a free world, remember?