HARDISON’S TIPS – MAY 5, 2021 – WHAT DO YOU NEED TO KNOW ABOUT COMMISSION SALES
3. Relative Commission Plan
The relative commission plan is when a target or quota is set. Let’s say a salesperson has a quarterly quota of $90,000 and a quarterly commission of $10,000. If they meet 85% of the quota, they’ll receive 85% of the commission.
This is in addition to their base salary, which can help incentivize underperformers without causing the turnover that often happens with roles under a commission-only plan.
4. Absolute Commission Plan
This is when a commission is paid as a result of engaging in specific activities or meeting specific goals. For example, a salesperson might be paid $1,000 for each new customer. Like the relative commission plan, it can help incentivize underperformers, but the emphasis is less on revenue and more on activity.
5. Straight-Line Commission Plan
A straight-line commission plan rewards salespeople based on how much or little they sell. For example, if they reach 90% of their quota, they receive 90% of their commission. However, if they exceed quota, their commission increases. This is a great way to incentivize underperformers to meet quota as well as those who consistently meet quota to overperform.
6. Tiered Commission Plan
A tiered structure encourages reps to put in extra effort by providing higher commission as they hit substantial sales milestones. Here, reps could be paid increasing commissions as they meet their quota, exceed their quota, and continue to close more deals than they’re expected to.
This is ideal for organizations with salespeople who consistently reach (but not exceed) their goals while having a little more control on commission rates than the straight-line commission plan.
7. Territory Volume Commission Plan
With this commission structure, salespeople work with clients in clearly defined regions. And they’re paid on a territory-wide versus individual sale basis.
This is ideal for team-based organizations who are wanting to fortify in specific service areas.
This ultimate guide to sales compensation provides even more detail on sales commission structures and compensation plans. And it will help you determine which structure will work best for your company and sales team.
The concept of a ‘fair commission rate for sales’ is fluid and tends to vary by industry and role. A sales commission rate can reflect factors like the value of products or services sold, employee involvement in the sales process, or the size of an employee’s sales territory. There’s no exact science to pinning that figure down, but referencing average commission rates for your industry can be a solid starting point.
Averages for salary and commission allow sales leaders to see how their sales commission plan compares to the rest of their industry. And for salespeople, they can see how their sales compensation plan stacks up.
Average Sales Commission Rates by Industry
The wages below are from the BLS Occupational Employment Statistics (OES) survey. These wages reflect the median average pay for each industry. The commission rate will depend on the company and the commission structure they choose.