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How Are Commission Agreements Structured?
Commissions motivate salespeople to bring in more business for their employers. Some people are attracted to positions where they can earn commissions because it offers a way to increase income. Companies have several options for how they structure their commission agreements. People taking jobs in sales should understand the terms of the commission agreement for sales because base salaries and incentives can vary, sometimes significantly.
Base Salary Plus Commission
A commission agreement with this structure grants salespeople some security regarding their minimum income. Typically, about 60% of a person's income comes from the base salary, and the remaining 40% varies according to the sales volume.
A salesperson working under a commission-only agreement, also known as straight commission, relies entirely on commissions for income.
A relative commission structure includes a base salary and ties commissions to quotas. For example, a sales representative might need to sell $100,000 worth of product in ...
... a quarter to earn $10,000. If the person only sells 75% of the quota, or $75,000, then the person earns 75% of the offered $10,000.
Instead of calculating commission based on its relation to a quota, an absolute plan bases commission on specific goals, like bringing in a new customer. This structure includes a base salary as well.
This structure gives the relative structure an extra twist in that it pays a higher commission to people who exceed their quotas.
A tiered plan increases rewards for salespeople as they achieve higher sales milestones. It allows salespeople to earn some extra money if they meet minimal sales quotas while increasing pay for high-performing salespeople who exceed their quotas.
Some companies focus on sales within specific geographic territories. Instead of tying commissions to specific representatives, the whole sales team wins if it produces enough sales within a given territory.
Companies select different commission structures based on what they can afford to pay for new sales. Employers may also value retention of good salespeople by offering a decent base salary or building in bigger rewards for high achievers. Ideally, a commission agreement for saleswill avoid being overly complicated. Otherwise, a salesperson might not be certain of a job's earning potential. Click here for more information on commission agreement for sales.
Emily Clarke writes about business software and services like commission tracking platforms, softwares etc. You can find her thoughts at commission software blog. Click here for more information on a commission tracker.
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