In this article
- The Problems with the Traditional Commission Structure
- The Benefits of Offering Higher Commission Rates in a Sales-Centric Business
- Ensuring Fairness in the Partner-based Commission Structure
- The Impact of Higher Commission Rates on Employee Performance and Business Growth
The Problems with the Traditional Commission Structure
Would you rather offer a lower commission rate and keep a salesperson on your staff for 3-5 years, or offer a higher commission and keep the salesperson forever? Everyone I’ve ever asked chose or advised the latter.
However, the mistake most leaders make is they start off low, saying, “When and if I have that superstar that asks me for higher, I’ll deal with it then.” The reality is, that never happens. The better salesperson starts analyzing the value they bring to the company and assumes this pay structure is final; without wanting to raise any flags, they plan their career move without bringing it to their boss until it’s too late for them to counter.As my previous company was getting off the ground, we had to face the same debate. At that time, our commission structure was approximately 50%. We decided to offer the highest commission splits in commercial real estate financing, switching to up to a 75% lifetime commission.
We positioned brokers less like employees
and more like business owners.
Here’s the big difference: a salesperson looks at their job like they are doing you a favor when they perform well; this job is a stepping stone on their career path. When you work with an outside vendor and you’re their client, they want to please you because it’s growing their business. They’ll often work harder! Both parties approach the relationship with a mutual desire to make it a success. What if your employees could have that same ownership mindset?
It was a risky decision at the time, but it paid off—to the tune of $5 billion!
It’s because we offered the most competitive commission structure, and that company thrived. I’ve taken that same mindset to GPARENCY today. I’m convinced if most leaders knew they could potentially keep an employee for life for just 25% more commission, they would make the same decision we did.
The Benefits of Offering Higher Commission Rates in a Sales-Centric Business
This week, I want to focus on an aspect that affects sales-centric businesses—commissions.
Commission-based businesses have an interesting dynamic: every business owner believes that the company earned the fee, and they generously gave up a certain portion to the salesperson. The salesperson believes they could have done the deal without the company, and they were the ones who left money on the table by splitting with the business. Because of this conflict, businesses spend a great deal of time wooing their sales team with benefits, free trips, and prizes to keep them happy.
As we were falling into this same pattern at my previous business, I took a step back and realized this cycle was crazy. We needed to make a change.
Like many of our new initiatives, this was unheard of… a good sign, in my opinion! Of course, we faced naysayers (a common theme in business). People told us it would never work; that our commission rate was too high and that we wouldn’t be able to operate at those margins and would shut the company down. Thank God, they were all wrong.Abe and I reasoned that we would rather give our employees a 75% commission and keep them forever than have a broker at a 50% commission that we’d keep for 3-5 years. Even though the brokers were ending up with an extra 25 basis points in commission, we were now able to save on the extensive perks and benefits we had to invest in before to increase retention. Instead of the company deciding how to spend those extra profits, we were now giving it directly to the brokers to do with what they wanted.
Ensuring Fairness in the Partner-based Commission Structure
When we offered the 75% commission to our new brokers, they thought there had to be a catch. It was too good to be true, right?
As I mentioned above, we explained to them that we were serious and were transparent about why. We didn’t want workers at our company who weren’t completely invested and might jump ship at the first opportunity. We wanted our employees to feel like partners, and we knew that the only way we could prove how much we valued them was by putting our money where our mouth was.
The Impact of Higher Commission Rates on Employee Performance and Business Growth
Not only did production go up because they were all in, but they also started investing in the success of the company and taking more of a hands-on approach. Plus, because they were earning additional money, they were able to invest in things for their own production they otherwise wouldn’t have. This helped them increase business, boosting our revenue and getting us to that $5 billion faster than we ever thought possible. This is only the tip of the iceberg! The benefits of this shift exponentially changed how we did business.
We started making more with a 25% commission at $5B in volume than we were at 50% of the commissions at $2B in volume.
And, the only time brokers left the company was when we made a fundamental change in its direction.
Although we might’ve sacrificed some short-term gains when we increased our commission structure, they ended up paying off tenfold. When it comes to your business’s commission structure, my advice is simple: never let a shortsighted survival mentality hold you back from strategies that create long-term growth and success.
Long-Term Growth with GPARENCY
Today, I am redefining the status quo at GPARENCY.
A GPARENCY membership can provide commercial real estate investors with the tools and resources they need to take control of their next deal. With access to a network of accredited LPs, exclusive brokerage pricing, a digital marketplace, and expert assistance, GPARENCY members are well-equipped to make informed investment decisions and achieve their goals.
A GPARENCY membership equips you with the most competitive tools to finance your next deal, including access to data, lender relationships, and discounted mortgage broker services. Members can manage their acquisition pipeline with ease around the nation using an interactive digital map with street view displays.
Other features include 400,000+ sales and finance comps and public data, updates on the best lender rates and terms, and the ability to have the GPARENCY banking team shop your deal for $4,000, or the GPARENCY brokerage team close it for $11,000 upfront or 1/4 point at closing.
- What are the benefits of the partner-based commission structure in commercial real estate?
- A partner-based commission structure in business can offer several benefits to both employees and business owners. In a partner-based commission structure, the employee has a personal stake in the success of the transaction, which can lead to increased motivation and effort. This ultimately benefits employees financially, and the business as sales increase and turnover decreases.
- Why are commission structures important in real estate?
- Commission is the primary source of income for most real estate professionals, and the real estate commission structure determines how much they will earn from a particular transaction. They set expectations for both the agent or broker and the client, defining the terms of the relationship, including the services that will be provided and the compensation that will be received. They also help to prevent disputes between agents or brokers and their clients.
- Does setting performance metrics motivate employees in the commission structure?
- Performance metrics help define specific, measurable goals for employees, which motivates them by giving them structure and a clear understanding of what they need to do to achieve their goals. For example, if a real estate broker’s performance metric is to close a certain number of deals within a set timeframe, this provides a clear goal of what they need to do to earn a commission. In addition, performance metrics can also help track progress and provide feedback. When a broker reaches a goal or achieves a high level of performance, this can be recognized and rewarded through their commission structure.