A New Hotel Sales Commission Model

HSMAI Executive Roundtable Case Study

How is it possible that the hospitality industry is one of the few industries where sales people are not commissioned on their sales?

In the hotel industry, we traditionally pay our sales people a substantial base pay and then give them a kicker incentive of anywhere from 25-40% if they achieve pre-determined revenue goals. In comparison to other industries where the bulk of pay is based upon the commissions earned from sales, I would suggest our sales people have it pretty good. The truth is based on the current compensation model, where sales people are getting paid whether they make a sale or not.  Now, under-performing sales people may not hold their salaried position for long if they can’t close deals aligned with goals, but they will still get paid while employed.

First, we need to take a close look at pre-determined sales goals.  The merit of the plan is entirely based on the accuracy of these goals, when for the most part, the ability to set goals requires reading a non-existent crystal ball.

So, what would it look like if the industry shifted to a commission based platform?  Personally, I’ve been tossing around this idea for years, but when I try to convince sales people that if they switch to this model they can earn an uncapped salary, they still shy away from the “guaranteed base” pay.  Is that because I don’t have the right sales people, or is that because they are conditioned from years in the industry to think that’s the best way to work?

Well, I decided to put the idea to test.  With a hotel in the midst of a challenging renovation and a schedule and scope proving difficult to set accurate goals, it was the perfect petri dish for my experiment to put everyone on the team on a commissioned sales model.  What happened, the direct correlation between sale and paycheck resulted in a hunger for a close that I had never seen before.  Our sales team was calculating their commission with each site tour and each proposal.  Instead of the closed sale taking them to 68% or 75% of their goal, the closed sale earned them $325, which seemed to make a real difference in the timeliness and quality of follow up.  I’m pretty sure that due to the strength of the sales team, the sale may have still occurred in most cases even if they weren’t commissioned, but the commission model unquestionably shortened the sales cycle due to behavior.  They were personally invested in each sale and it showed. In short, our bottom line was their bottom line.

The obvious question here after this experiment is if I adopted the model company wide, and unfortunately the answer is no. The reason for this, which I learned directly from my test case, because unlike selling widgets or subscriptions where there is an endless supply to sell, we are selling a product that is finite and expires. This results in our teams being selective in the business we book through our revenue management and yield process.  The specifics of “selecting” the business they would take had the propensity to conflict with the hunger to earn commission.  In short, when the idea of declining a booking conveyed a loss of commission, the disappointment was at times in conflict with our team-first culture.

But, I haven’t given up the idea of commission based sales in our industry.  The new model I’m testing is a commission based lead generator.  More to come on the success of this role…stay tuned.

Case Study Contributor:

 Allison Handy, Senior Vice President of Marketing, Prism Hotels & Resorts, attendee at HSMAI’s Hotel Management Company Sales & Marketing Executive Roundtable, Fall, 2017

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Categories: Sales
Insight Type: Reports