What Are Sales Commissions Structures?
A commissions structure is basically a way of organising how you offer commissions. So, as you know, commissions can’t just be random; there has to be some kind of structure to how they’re offered so that salespeople know what they’re getting as a reward for their hard work. Ways of doing just that are what this post is about!
The 5 Top Sales Commissions Structures
So there are a few kinds of commission structure that are more common than others. These are the top five, starting with…
Some businesses choose to offer a commission only structure as the way they pay their employees. They don’t offer any salary at all, so the only money that an employee takes home is based on what they sold that month. This can be great for both the business and the employee: it guarantees that there’s no dead weight on the sales floor, because quite literally only the strong could survive on what they earn! It’s going to motivate every single member of your sales team to perform at their very best, and you’ll only pay employees when the business profits.
On the flip side, it’s also great for high rollers who are great at what they do, because they can earn plenty of money doing it. There are a couple of downsides to this approach, though. First, it’s not very flexible: what if a member of the sales team needs to take a few weeks off because of illness or an emergency? That insecurity can lose your business valuable employees, and also discourage potential recruits. Commission-only structures are a double edged sword that’s best used in a very fast paced, high pressure environment, especially one where you know you’ll be able to find new employees fast!
So what about the different kinds of commission you could offer?
2. Flat Commission
Flat commission is where you offer a set amount per sale. Depending on what your sales team is trying to achieve, that could be anything from £1 to thousands! A flat fee is a good choice for high-volume sales, like in a call centre. They’re simpler than percentage-based commission, and as such are easier for your sales team to understand. Because they’re so simple, your sales team can directly understand how their hard work translates into cash.
3. Percentage Commission
Percentage commission, like the name suggests, is where the salesperson gets a cut of the sale. Again, this could be a small or large percentage. This is a better tactic for teams that don’t sell high volume, which is why you see this approach in places like car dealerships. It’s also better for businesses that have a wide range of prices for their products and services. In a flat structure, an employee who made a £100 sale would get the same as someone who made a £500 sale. A percentage structure is therefore a very direct reward for each sale. That being said, it isn’t great for low-value/high-volume sales, which can be more difficult to calculate.
4. Salary Plus Commission
Naturally, many people- even if they’re not good at sales- wouldn’t be comfortable working in a commision-only environment. Salary plus a flat commission for each sale is a good balance between both ends of the scale. Every worker is guaranteed a salary at the end of the month, but at the same time, there’s the promise of extra cash for hard work. On the one hand, this offers employees the security of knowing that they’ll definitely have something to show for their month’s work, even if they weren’t always on the ball. On the other hand, the commission is naturally less since everybody is already paid a base salary. This can discourage the ‘top dogs’ from performing to their potential.
5. No Commission
There’s always the option of not offering commission at all. It’s worth bearing in mind as an option, especially for businesses that don’t rely too much on their sales department. Maybe most of your clients discover your business through SEO or advertising, and you don’t need to give them the hard sell; maybe your business doesn’t need an entire team of salespeople because you don’t have that many leads either way. But if you do have a sales team, even if ‘Sales’ aren’t that important to your business, you could consider not working on a commission basis. The main benefit is that your business will save money!
There are even a few more structures aside from these. The most interesting are two sides of the same coin: commission based on team performance and commission based on individual performance. Rewarding team performance is a really interesting idea- it fosters a real sense of togetherness among team members, and keeps morale high. If that doesn’t sound like it would work for you, though, you have plenty of options available above!