Performance-based pay, also known as commission-based pay or straight commission, is pay based on your sales performance. Rather than being paid a wage or salary, your pay is either a percentage of the selling price of your product, a percentage of the wholesale price of your product or the difference between the cost of your inventory and your selling price.
Performance-based pay motivates you to sell. It's the only way you get paid, after all. You also feel a sense of accomplishment in that the amount you're being paid is a direct reflection of how hard you've worked and your skill. There often isn't a cap on the amount of income you can earn, so your income isn't limited by the amount an employer is willing to pay you.
Many commission-based salespeople have a great deal of freedom in their day-to-day work. There typically isn't a rigid schedule or constant supervision. You're not behind a desk or in a cube all day; you're interacting with potential clients, sometimes in their homes or on a sales floor. If you need to plan your day around a doctor's appointment or a child's soccer game, you're typically free to do that.
One of the disadvantages of performance-based pay is the financial instability. You don't know from month to month how much you're going to make and there typically isn't any sick or vacation pay. Having some savings set aside helps to alleviate some of that tension, but not knowing whether you're going to be paid, or how much, can create anxiety.
Just as there's no limit to how much you can earn, there's also no limit to how much you can work. Particularly early in your career, your hours can be very long while you're building up your client base and learning to sell. Evenings and weekends are typical, and six-day or seven-day work weeks are, too, particularly if you have a high sales goal to meet or if you're making up for time you've taken off.
Melinda Hill Sineriz is a freelance writer with over a decade of experience. She specializes in business, personal finance, and career content. She has worked in sales and has managed her own business for more than a decade. She has also written content for businesses in various industries, including restaurants, law firms, dental offices, and e-commerce companies. Learn more about her and her work at thatmelinda.com.