Competitive sales commission and compensation are critical for attracting and retaining top sales talent. Giving fair commissions is a way of recognizing their efforts and performance and appreciating their hard work. Employees feel appreciated and motivated to work harder and generate more sales.
It is the responsibility of the sales business owner to use a fair sales commission model that rewards efforts, account growth, and hard work. Have a sales commission job structure in place to retain sales heroes.
Everything You Need to Know About Sales Commission
Companies compensate sales reps for their hard work by paying commissions in addition to the basic salary. The commission earned by the employee directly depends on the number of sales made during the particular period. Every company follows a different commission structure to encourage sales teams to perform better.
Preparing a Sales Commission Plan
There are no specific rules for building a sales commission plan as it depends on the team’s structure, budget, and business goals. Some companies offer lower basic salaries along with hefty sales commissions while others provide standard salaries with competitive commissions.
Whether you follow either of the aforementioned commission plans or draft a new one, take into account a number of factors including targets for the sales team, the business’s overall goals, budget, and the revenue generated by salespeople.
Know how much your competitors are paying their sales teams and try to do better to retain your best sales reps.
Understand the Types of Sales Commission
Most sales business owners have a hard time figuring out who deserves rewards and sales commissions. It would be useful to know three main categories of sales commission when drawing up the commission plan.
- Individual Commission – This type of commission is only given to employees who have exceeded their monthly or weekly targets.
- Team Commission – When a team works together to achieve or exceed sales quotas, each team member will be eligible for the commission depending on the percentage determined by business owners.
- Mixed Commission – Based on the efforts and time required for the project, a company owner may offer a commission to the team or individual.
Examples of Sales Commission Structure
There are multiple types of sales commission plans and a business owner may have to try a few before finding the right one.
- Salary Only – A salesperson is only paid a standard salary with no commission or rewards and little to no sales incentives.
- Commission Only – This performance-based plan is used by small businesses with low budgets. The sales rep is paid a percentage of the sales they make in a specific period.
- Salary+Commission – Commonly, most companies use this model to motivate employees to exceed their sales quotas.
- Territory Volume – Sales team working in a specific area will be awarded compensation based on territory volume. The commission earned by the team will be divided evenly between salespeople working in that area.
- Profit Margin – Salespeople are eligible for a commission when they sell products at a considerably higher price than the cost.
Lastly, the compensation plan does not have to be complicated, instead, it should be simple, clear, and with no loopholes.
Challenges
They have been used over the years as a way of motivating teams with reward-based incentives that are commensurate with the performance achieved. While it is a popular form of remuneration, it does have its challenges.
The biggest challenge of using it lies in setting appropriate levels for each individual. Team members usually work on different tasks that are hard to pinpoint for specific rewards, meaning that overall performance can be difficult to accurately evaluate and measure from individual contributions alone. It’s also important to consider how external factors such as market or economic conditions may potentially affect the success or failure of your incentive program.
Another key challenge is making sure that they comply with relevant regulations, such as equal pay laws or labor requirements in different states and countries. Governments often monitor them closely to make sure they remain within legal parameters, so it’s wise to stay informed of any changes that are occurring in rules and regulations around these practices.
Finally, companies must ensure that staff at all levels are happy with the chosen level of payment in order for a successful incentive program to be implemented. It’s important not only to keep employees motivated but also not to overpay them while satisfying company goals. Taking time to listen and understand employee needs is an essential part of ensuring meaningful progress from everyone involved in the process.
Conclusion
In summary, it is a payment made to a salesperson based on the amount of sales they bring in. It can be a fixed percentage of the total amount sold or a combination of flat rate and/or sliding scale payments. Typically, the more materials or services sold, the higher the rate. These plans often come with additional incentives for good performance such as bonuses, gift cards and other rewards. When setting your structure, you should factor in costs like labor, overhead and marketing expenses to find an appropriate balance that meets both company and employee targets. Ultimately, by setting up an effective plan that encourages healthy competition between employees while being mindful of bottom-line considerations can increase overall growth and customer satisfaction rates.
