Securing the sales commission structure you want affects which company you work for. Traditional structures are made up of fixed base salary and variable compensation. Because variable compensation depends on the sales results you achieve, you need a commission structure that fits your unique goals and performance level.
Here’s how to land the commission structure you want when looking for your next sales role.
Target Your Sales Commission Structure
Determine which sales commission structure best fits your needs and performance goals. For instance, a revenue commission structure involves fixed product and service pricing. To illustrate, a company selling widgets for $1,000 has a sales commission rate of 5%. Reps collect $50 for each widget they sell. A gross margin commission structure considers the price of the sale, costs associated with making the sale and profit of the transaction. For example, the company selling widgets for $1,000 has $500 in associated costs. The sales commission is a percentage based on the remaining $500 profit, not the $1,000 revenue. A tiered commission structure is designed for reps to earn greater commission rates as they surpass specific levels of revenue. To illustrate, a rep earns 5% on each widget sold up to $100,000 in total revenue. The rate increases to 7% when the rep surpasses $100,000 in total sales. The commission rate may increase again at certain total sale amounts. A multiplier commission structure starts with a typical sales commission structure, then is multiplied by a percentage factor of quota achievement. A straight commission structure pays on a commission-only model. Since earnings are composed entirely of variable pay, there is no fixed salary component.
Consider Advantages of Sales Commission Structures
Different sales commission structures offer different advantages. For instance, a tiered commission structure increases team morale. As a high-performance rep, you have greater motivation to continue selling and earning higher commission rates. As a result, you feel encouraged to branch out into new areas and pursue opportunities you otherwise might overlook. A multiplier commission structure motivates you to perform at higher levels. A commission-only structure can offer significant commissions.
Consider Disadvantages of Sales Commission Structures
Sales commission structures offer various disadvantages. For instance, although you feel motivated to close deals under a commission-only plan, your work involves greater risk and more stress than other structures. This increases the odds of sales closing in a manner, not in alignment with company goals. It also tends to lead to rep burnout.
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