Why we pay our sales team by salary and not by commission

You’d probably be surprised to know you could actually be better off with a firm that pays its salespeople salaries instead of commission. The salesperson on commission can be under pressure to get deals through at any price (because their livelihood depends on it). But the one on a salary can be more thorough about getting the result that's best for you.

When we started out, our sales people were paid by commission when a house was sold. One portion of the commission was paid to the salesperson who listed the house for sale, and another portion to the salesperson who assisted the buyer to purchase it. (Sometimes this was the same salesperson, but not always.)

The truth is, however, that in the past “8 out to 10” houses would virtually sell themselves, at a price around market value, without the firm having to do much more than advertise each home and hold open for inspections. Therefore, it was far more profitable for a salesperson to list a property, more or less forget about doing much to sell it well, and pour all their time and effort into chasing the next listing.

Why? For the individual selling agent paid by commission, the fact that a property sells for $20,000 more or less, didn’t make a big difference to their share of the commission (an extra $44 or thereabouts).

By contrast: if they listed another property, at say a value of $750,000, they had the opportunity to earn a listing commission of approximately $3,600. So, instead of spending time trying to get another $20,000 for your home, which would earn them just $44 extra, their incentive was to concentrate on getting another listing, which could give them a significantly better return on their time.

We realized that the financial incentive for a salesperson relying on commissions for their livelihood came from listing property – not selling it for the best price! From a commission agent’s point of view, any price would do, and the quicker they could get rid of the property, the sooner they could get on to securing the next listing. But this was clearly not our objective. Instead we wanted to empower our team to provide the quality of service needed to ensure the best selling price.

Another downside to paying salespeople commissions is the influence is has on reducing cooperation within the firm. The salespeople are competing with each other for their income and this encourages selfishness rather than mutual support. A salaried team of salespeople is free to work together and combine their skills to deliver the best possible service for the customer.

For these reasons, the Whale & Co. sales team are not paid by commission. Instead they are paid salaries based on their skill and proficiency at delivering customer service according to our company’s high standards. Without the pressure of having to survive on commissions, our salespeople have greater freedom to give the very best service. And the result is that our buyers and sellers are happier with the help they get to achieve their goals. This is one of the reasons our average “days on market” with the houses we sell has been around 28 days—significantly shorter than the 43-day industry average.