The pressure is on.
About 69% of sales professionals say selling is more difficult now than in previous years, according to Salesforce’s State of Sales report.
Even though it’s harder to sell, reps still need to hit their numbers. And in this ultra-competitive environment, morale can quickly take a dive. To keep your sales team motivated when things are tough, you need to reward them for their victories. That’s where sales commission comes into play. Done the right way, commissions can be a powerful incentive to give your best and go beyond your comfort zone.
In my 20-plus-year career, and as founder of the Harris Consulting Group, I’ve learned some valuable lessons, tips, and best practices when it comes to structuring sales commissions. I’ll walk you through all the factors you need to consider when setting a sales commission structure for your team.
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Sales commission is the additional money reps earn on top of a base salary for achieving specific goals. Commissions often push sellers to achieve sales goals and generate revenue.
For example, let’s say your leading rep’s base salary is $100,000. Your company offers a 10% commission for a product valued at $5,000. If they sell just one of those products, their net pay is $100,00 + (.1 x $5,000) = $100,500.
I believe commissions are a game-changer. Sales is one of the few professions where you can build the life and income you want based on the effort you put in. As Scott Leese, founder of Scott Leese Consulting, affirms: “In my experience, sales commissions add a level of excitement and positive reinforcement for sales teams.
Commissions help organizations boost sales team morale and grow organizational revenue. But they offer a lot more. Leese offers the following benefits of commissions in sales:
Let’s dig deeper to unlock the true power of commissions.
Because it’s core to their salary, understanding commissions is crucial for sellers. Consequently, businesses must understand the power commissions have on their workforce.
For instance, a 2022 Gartner survey found that 90% of sellers experience burnout, which can lead to resignations. Commissions may have the power to incentivize reps to stick with your company long-term. Certainly, some types of commission structures are more attractive than others and can give your company an advantage when attracting and retaining the best sellers. Leese believes the best commission plans align the salesperson’s interests with the company’s interests.
“While commissions provide financial incentives, well-designed plans encourage salespeople to take a long-term, customer-focused approach for a mutually beneficial relationship,” he said.
To achieve that alignment, businesses must strike a delicate balance between their commission rate and structure. I like to imagine commission as the dangling carrot. The challenge: If the commissions are out of line with the company goals, the carrot becomes the stick. Certainly, nobody is going to stay at a job where they’re reprimanded for not hitting unreasonable targets.
Commissions come in different shapes and sizes. Knowing your rep commission rate, structure, and payout gives sellers financial visibility and helps you align them with business objectives. But there’s a little more to it…
The stakes are incredibly high in sales. It’s one of the only roles where not meeting your quota will put you at risk of losing your job. Surviving in a make-or-break environment means salespeople must keep an eye out for their next employment opportunity, even if they are all-star sellers. That’s why you want to build a compensation plan that makes it impossible for someone to recruit your best seller. With the right approach, you can build commission rates and structures to promote smart behaviors and encourage retention rather than just immediate sales.
Here are a few things to be sure you include in your commission structure to ensure buy-in from your whole team:
Let’s take a look at some examples of commission types and how they’re calculated so you can see what would make the most sense for your business.
