By John Tucker
1st Capital Loans LLC
Dr. Homa Bahrami, Senior Lecturer at the University of California Berkeley, Haas School of Business, said, "Job security is gone; the driving force of a career must come from the individual."
I agree. And for this article, I'll explain why by highlighting important changes in our national economy. I believe we are living through one of the worst job markets of all time. Despite the unemployment rate being under 5 percent, the reality of our situation paints a completely different economic picture, as follows:
We are told to rack up student loan debt for a degree (because a degree always "pays off") then run to major online job boards to look for a job. But let's take a quick look at the abysmal online job board hiring process:
Going forward, we must create our own jobs. After all, we are in professional sales, which is founded on business development. And that is the process of creating long-term sustained value in the form of new markets, products and processes.
Keep in mind that by working in professional sales, we are already functioning as entrepreneurs, which is all about taking a look at what's currently happening and asking: How can this be done better? What market segment isn't being served? How can we make solutions and products better? Where can we do things differently?
There's no better way to do this than as an independent contractor, whose income is reported on IRS form 1099. You might think you are more secure as an employee receiving IRS form W-2 each year, but the base pay and benefits for such employees are a phantom. All of the upfront payments you receive as a sales employee are merely just "draws" against your future sales production. This is why if you don't hit certain quotas, your payments could be clawed back, or you could be immediately terminated.
The W-2 model offers no real job security. Many sales managers will set sales quota levels for receiving bonuses so high that they know you won't reach them (thus reducing how much they have to pay you). And they will likely cycle you out after a few years to hire someone new for a lower base pay.
You eliminate these issues as an independent contractor, because you are building your portfolio with lifetime compensation for the duration of the relationship with the client. In addition, you can't be pushed out of your job due to politics, insane quotas or an out of touch sales manager.
As Street SmartsSM author, I've been highlighting various ways merchant level salespeople (MLSs) can rebrand, including being technology professionals. In that vein, here is a fictional example of production for a rep selling POS systems:
The revenues derived from the 100 merchants include:
If an MLS who is an independent contractor receives a 65/35 split on revenue share, this turns out to be $390,000 from the basis point markup of interchange over five years, before even adding in revenues from the transaction fees. For POS system sales, if the independent contractor receives $1,500 upfront for each system, this comes out to $150,000.
Also, based on usual Schedule A structures, the independent MLS would likely get about 50 percent of the annual and statement fee revenue, which comes out to $860 over five years. This is a total of over $540,000 with a good chunk of this compensation being paid out in year one and the rest paid out over the next four years.
In contrast, the employee (W-2) most likely would only get a base salary of $60,000 and a bonus of $20,000 per year. Also included might be a benefits package providing insurance, time off for holidays, sick days and vacations; a company car; half of the employee's Social Security contributions paid; and 401(k) matches. All of these might be valued at about $20,000. This comes out to $100,000 in total gross compensation and benefits, which would represent the only compensation from a given year's production the employee would receive. And the employee could be fired thereafter for any reason.
As we progress through the 21st century, our economy will be like nothing we have seen before. Technology, robotics and globalization will continue to take away jobs. People will continue to run up debt on college degrees and subsequently find no jobs where they can use the skills they just acquired.
The answer going forward is entrepreneurship. For sales professionals, that means working to develop our own businesses as independent contractors. In this manner, you can eventually build up your recurring revenue portfolios to where they cover all of your personal expenses, giving you financial freedom.
The days of searching for a job on an online job board are over. The days of depending on an employer to manage your retirement are over. And if you must go to college, do not spend $100,000 for it. Using the Information Age's excellent market research capabilities, global technologies, shared virtual offices and more, you can duplicate many of the competitive value propositions of large companies as independent contractors.
Going forward, those who create their own jobs will have the strongest chance of true job security; those who continue to seek work as employees, will struggle with high levels of unemployment, high levels of debt, and they will never get to the point of saving enough to have any truly meaningful retirement.
John Tucker is Managing Member of 1st Capital Loans LLC, as well as an M.B.A. graduate and holder of three bachelor's degrees in accounting, business management and journalism. Tucker also has over nine years of professional experience in commercial finance and business development. You can contact him by email at firstname.lastname@example.org or by telephone at 586-480-2140.
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