W2 or 1099 – Which Should a Sales Rep Choose?

Like many of you, I have held a variety of sales positions and sold many different things.  At times I have been a W2 sales rep and other times I was a 1099 sales rep.  So how do you choose between being a sales employee and an independent contractor? In my opinion, this decision comes down to two words:  “Survival” and “Value.”  Allow me to explain.

The first thing to consider when choosing between a W2 sales job and a 1099 sales job is survival.  In other words, what sales survival skills and resources do you have?  If you have three months savings or an existing Rolodex of contacts, you have some serious survival resources.  You can be a little more picky about the position you choose.  The majority of risk and cost for a company is the cost and risk of bringing on a new sales rep.  One company risk is to pay a sales rep but get nothing.  Another risk is to spend time training and get nothing.  There is a risk that the company gets a few clients only to have the sales partner leave, taking those relationships.  If you can reduce these risks and costs, you can get more value from the relationship.

You may come to the table able to say, “I already have a book of business that I can bring with me to this new position,” or “I don’t need a salary or any compensation during training because I have some savings.”  If so, this will put you in the driver’s seat of the negotiation to maximize the value you get.  So let’s start by evaluating your ability to survive during a new sales position by answering a few questions.

• Do you have experience and knowledge selling in this industry?
• Do you have at least 30 to 90 days of savings built up, so you don’t need compensation during the training process?
• Do you have a book of business or existing contacts which will be good prospects for this new sales position?
• Do you have years of sales skills that match this model?  (If you have sold consumers over the phone for ten years and are now looking for a B2B / door-to-door sales job, the answer to this question is “No.”)
• What other skills and potential value do you bring to the table that will help you survive and thrive during your first 30 to 90 days in this new sales job?

Now that you established your ability to survive with or without some help from the company with whom you are working, now is the time to look at how much value you can get from the company and what value you need most.  If you answered “No” to all of the questions above, you are looking for a solid base salary, lots of training and other resources to get you off on the right foot.  This type of value is most often found in a W2 position where your long term value is lower.  While unlikely that you will own your residuals or be able to keep your book of business in a W2 position if you leave that company, you are more likely to get the help you need to start from scratch in a new industry with a new set of sales skills.

If you answered “Yes” to at least one of the questions above, you might consider a 1099 position.  The reason is that the type of value you need is more about your long term compensation.  All things being equal, you will always make more money as a straight commission sales rep than a W2 sales rep if you make the same number of sales.  This is because the company isn’t usually risking very much in order to take you on board.  So they are willing to pay you more when you make a sale.

The problem with being brand new is that you first have to make sure you can survive long enough to succeed.  If you don’t have any survival resources, to survive as a straight commission sales rep is unlikely.  You might be better off starting as a W2 employee to build up some experience, savings, and contacts before going straight commission.  However, if you have objectively looked at your survival resources and believe you can make it successfully through the first 90 days, to go 1099 / straight commission is a no-brainer.  Do your homework and ensure you are with a reputable company and have an attorney review your agent agreement so you understand the true value proposition.  Then you can be assured of always making more money as a 1099 / straight commission sales rep.

Have a great day!

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