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Every once in a while, I see someone asking this question. Usually, it's a relatively new consultant who's been pitching smaller businesses. Often, they lack confidence about their abilities, so it's very easy for a determined potential client to talk them into lowering their rates or considering alternative fee structures. “After all,” they think, “If I'm really good enough to demand payment for my services, shouldn't I be willing to back it up by accepting commission?”
In my opinion, the answer is not necessarily straightforward…
Should Freelancers & Consultants Work on Commission?
99% of the time, the answer is NO. If the client approaches you with a request to work on commission (as opposed to you proposing it as an alternative), I'd amend that to 99.99% of the time. There are a couple of reasons for that.
Offers of work on commission are often the domain of unfocused newbie entrepreneurs.
Serious, established business people know the value of what they're hiring you to do, and they respect that you're running a business, too. They know that your copy, or marketing work, SEO or whatever you're doing for them may not pay off immediately, and it may not ever pay off, but they're willing to take that chance because they know how their business functions and they are fairly sure of what will happen.
On the other hand, the internet has made it easier than ever to start a business, which means a lot of people who shouldn't be entrepreneurs are becoming entrepreneurs. These people often run from one idea to another, never really getting anything going before getting bored and moving on. Some have little to no faith in their businesses to generate money, even with your help, so they try to limit their downside by getting you to agree to commission instead of up-front pay.
Even if you do end up making one of these newbies some money, the odds of nonpayment are higher, and they can be much more difficult to work with because they tend to be anxious, less focused, and less sure of what they need (which frequently means more revisions or less customer satisfaction). It's not that I advise against working with new businesses, but you need to find entrepreneurs with a solid business plan, sufficient funding, a good idea of what they want from you, and a healthy respect for your services and expertise.
You don't have enough control.
Let's say someone wants to hire you to write killer long-form sales copy for the redesign of their primary landing page, but they want to pay you a percentage of the increase in sales. The problem here is that you generally don't have any say over the following elements:
- Page design – font size, readability, color psychology, images – all that stuff that factors into conversion rate and your would-be paycheck
- Inventory levels – if they sell out or have supply issues, your pay could grind to a halt. And who knows, they could be trying to use your copy to sell out some remaining inventory, then drop the page entirely.
- Ongoing optimization – If you're going to take commission, you need to have the ability to split test the content and optimize accordingly
- Company policies/stability – What if a new employee comes along and kills off that product line or de-emphasizes its presence on the site because it was the pet project of someone they didn't like? Your income is gone.
Most businesses don't have the scale to make commission-based fees pay off.
The best work in the world won't pay off at the rate you want if the company doesn't have the scale to drive and fulfill enough sales to make it worth your time. A company that's currently getting 500 unique visits/month and spending $20/month on advertising isn't a good bet, even if you're confident you can quadruple their conversion rate or triple their traffic. That's not to say those businesses won't blow up and get huge someday, it just means it's much safer to ask for cash up front until you can see clear signs that they have the budget, ability, and manpower to scale up significantly as a result of your efforts. If they can't afford to pay you cash up front, guess what? They probably can't afford to appropriately capitalize on your efforts, either.
Local businesses (especially things like restaurants and hotels with limited capacity) are also problematic for this reason. Even if you do something that triples their business, they'll probably have to turn away most of it. It's also much, much harder to prove your impact, which brings us to our next point…
Commission-based rates add issues of trust and tracking.
There's a lot of annoying overhead and admin with any kind of business, and accepting a commission-based rate just adds to that headache. The client has to give you access to all the data you'd need to see evidence of results (assuming it's possible – some things can't be tracked) , AND you have to feel comfortable they won't do anything sneaky like adjust their site and tracking code to intentionally under-report your earnings.
Once you get access to the data you need, you have to keep an eye on it and follow up regularly to make sure you're getting what's due to you.
You also have to write your contract very carefully to eliminate loopholes – and be willing to fight if the client tries to get around it. Let's say you've done a great job on something and you're getting a hefty commission payment each month. At some point, most clients will think, “Wow, this consultant is taking way too much of my money every month. It would be smarter to hire someone to redo it for a flat fee.”
When Should You Consider a Commission-Based Consulting Fee?
All that said, there are some very limited situations where it can be worthwhile to work on commission. I've known some people who've earned ridiculous sums of money by negotiating performance-based compensation. There are some key identifiers for these types of opportunities:
- You can look at the business and its data and immediately see clear ways you could make a large impact on revenue.
- The company in question has the scale to take advantage of whatever you're going to do to increase business or conversions.
- You feel enthusiastic about the company, its products, and the opportunity.
- Your point of contact is willing to take you on as more partner than outsourced employee. You won't necessarily own a share of the company, but they'll be willing to implement (or allow you to implement) changes that are outside the scope of just your little piece of the project.
- You have control and/or significant input on the key factors that would determine your pay.
- You have the time and access to verify the impact of your efforts and get paid.
- You're working with someone who is pleasant and respectful.
- You have an iron-clad contract that handles all the possible loopholes that might let someone stop paying you while benefiting from your work.
- You feel particularly confident about the results that will be achieved, based on everything else they have in place.
Basically, you have to be willing and able to take on a bigger role than you normally would for a freelance/consulting project. In general, that role needs to involve some amount of ongoing work in order for the client to feel like they should still be paying you (although in most cases, the biggest chunk of work comes before reward).
I've seen these types of arrangements work out really well for marketers and copywriters working with companies selling information products or small, high-margin physical products, as both can scale really effectively and they don't typically have the limiting factors you might see with local businesses or lower margin/huge items.
It's not for everyone, but in some very limited circumstances, commission-based arrangements can pay off in a big way. When in doubt, though, I would generally recommend sticking with other types of compensation.
You Don't Have to Accept Commission-Based Rates to be Successful
When I first started consulting, I was seriously undercharging and I STILL had some potential clients who tried to tell me, “That's just the way you have to do it when you're starting out. Most people have to work for free to get started, so my offer to pay you commission is great.”
I'm pleased to say I never took any of those ridiculously insulting offers, but I've talked to a lot of people who have. In retrospect, they know the warning signs were there all along, and they quickly grew to regret those projects.
Being new doesn't mean you have to take crappy deals. Neither does working from home, being female, not speaking English as a first language, or anything else some people will try to use to get you to work against your own best interest. Don't take a commission-based job unless you've done your homework and you're absolutely certain the risk is minimal and outweighed by the potential rewards.