Commission sales is when a company compensates their salespeople with a percentage of the sales that they make.
What Does Commission Mean?
Commissions are a set percentage of the price of a product or service. The percentage, however, can vary greatly across companies and industries. For example, enterprises can choose to evaluate personal or team productivity. To track the sales process and calculate the commissions correctly, companies prefer to use specialized software.
How Do Commission Sales Work?
With commission sales, companies pay salespeople a direct percentage of the revenue that they generate in exchange for making sales. Depending on the model, commissions can make up part or all of salespeople’s income. This means that their productivity has a direct influence on the money they make.
On the one hand, commission sales motivate salespeople to do everything they can to increase their numbers and generate revenue. On the other hand, when commission makes up a large percentage or all of their income, salespeople often work under considerable stress, which can have a negative influence on their sales techniques.
Different Types of Commission Sales Structure
- Straight commission: each salesperson earns their payment after closing a sale, and the commissions constitute 100% of their income.
- Base salary + commission: each sales specialist has a set monthly salary and gets a bonus for each sale that they close.
- Territory volume commission: the commission depends on the total sales number across a particular region and is split evenly between all team members.
- Revenue commission: a salesperson earns a percentage of the revenue they generate.
- Draw against commission: a combination of the first two models.
- Tiered commission: the commission increases every time a person achieves a set goal in a list of sales targets.
Non-commission sales are a model with no additional reward for high performance. With non-commission sales, the company spends less when deals are closed. But it’s possible that their sales specialists are less motivated to sell proactively.