Are you exploring potential sales commission structures to compensate and incentivize your employees? If so, you have many options to investigate. Commissions are more complex than most realize, offering flexibility based on the nature of your company and the product or service it provides.
In this blog, we'll provide the basics of the most commonly used sales commission plans.
Straight Commissions
Here's the most straightforward plan. In it, your company pays for sales commissions and nothing more. What your employees take home depends on how much they sell. It's an easy-to-understand plan that even a rudimentary tool for reporting commission payments can record. If you are looking for a tool for reporting commission, visit this website.
Territory Volume Commissions
With this plan, geographic locations come into play. You might have a team that works in one defined area for sales. If the entire group collectively meets the sales volume goals over a specified period, they split the commission.
Tiered Commissions
With a tiered commission, your employees can earn more if they exceed sales goals. Generally, you'll set a rate for one revenue bracket. For example, you might offer five percent up to a total of $100,000 in sales. If your employee exceeds that, they move into the next bracket, which could be seven percent on sales up to $200,000.
Revenue Commissions
This option is standard for organizations with larger goals than just total profit. Salespeople earn a specific percentage of the revenue. For example, someone working in auto sales might make three percent on the total sales price of a vehicle.
Gross Margin Commissions
If you choose to use this plan, it pays to have a tool for reporting commission payments. It's more complicated, as it takes expenses into account. Here, your employee would earn a specific percentage on the gross margin alone. Say, for example, that they sell a $150,000 vehicle that costs $100,000 to make. They would only earn commission on the gross margin of $50,000.
Residual Commissions
Residual commissions are typical for companies that deal with ongoing accounts. You see it often for insurance or SaaS products. Employees earn a commission each month as long as the account continues to remain open.
Base Salary Plus Commission
If your business experiences high and low sales periods, this plan could be beneficial. In addition to the set commission rates, you provide a base salary. In many cases, the base pay would only cover a portion of an employee's income, such as 60 percent.
Which Commission Plan is Right for Your Company?
There's no single right choice in the commission structure. Every business is different. Consider how these options align with your operations and choose one that benefits your business and your sales team.
Read a similar article about loan commission management here at this page.