(Previous articles in Robert Lindgren’s Pricing series are “The Proven Path to High Profits: Sell as Much as You Can Produce for as Much as the Customers Will Pay,” “The Power of the Hit Ratio,” “Pricing the New Stuff,” and “Getting the Most Out of Your P&L Statement.”)

Sales reps are key players in your business since their efforts to bring orders into your plant will determine whether you can pay for the overhead (the “nut”) and get into profit-land—or fall by the wayside. Your objective is to attract and retain the best ones while motivating them to attain even better results. Their knowledge of the market and their customers are a central part of the process of optimizing pricing. The objective should to get them on the team and make their interests parallel that of the firm.

You could pay them a salary just like everyone else and them give them bonuses and raises if they’re successful. The tough part would be deciding how much to pay them to start, and the even tougher part would be how to structure raises and/or bonuses to recognize performance. As a result, most firms have found that paying sales reps a “commission,” a specific amount for each order obtained, is the best approach. This is usually combined with a “draw,” a salary which is an advance against future commissions and reconciled on a monthly or quarterly basis.