Today, commissions are a large part of attracting and retaining a dedicated sales force. Commissions have become an expected incentive that sales employees use to determine their dedication to a company as well as a method of measuring their own performance. However, businesses are understandably reluctant to give away a portion of their revenue that could benefit the company in other ways.
In this article, we will overview sales commissions, and why sales commissions are beneficial for both the company and its sales force.
What are Sales Commissions?
Commissions are additional earnings a sales employee will earn on top of their standard salary. These amounts are determined based on the number of sales an employee has made. Companies may pay their sales employees commissions as an added way of rewarding performance and productivity.
How do Commissions Work?
There are two ways companies generally pay commissions. The first way is called Ramped Commission, where the percentage of sales commission an employee receives grows as they generate more sales or reach higher targets. The other way is called Flat Commission, where employees get paid a percentage or rate on each sale they make.
When do Sales Commissions Get Paid?
Employees traditionally get paid their sales commission within their normal paycheck after a client has paid for their services in full. Alternatively, some companies may choose to pay their sales employees monthly, as a sale is finalized. This is because it is believed to be unfair to make a sales associate wait for their commission, when they have already put in the work to earn it.
Benefits of Providing Your Sales Staff with Commissions:
Commissions Attract the Employees You Want
Employees want to work in an environment where there is always an opportunity to grow and make more money. In fact, 43% of employees have stated that they would leave their current job for the opportunity to receive a 10% salary increase. A truly incredible employee that has the ability to rack up wins, needs a reason to stay with your organization as opposed to the highest bidder. Commissions are an incredibly effective way to reward those employees in a manner that rewards performance, reflects their value to your organization, and keeps them secured within your company.
Commissions Are Highly Motivating
A regular employee with a fixed salary, while dedicated to a company, has no reason to go above and beyond what is expected of them. Employees will always prioritize their own interests over those of even the best company. Motivation is key to building a workforce that does not just perform but excels. What better motivation is there than money?
Naturally, your businesses would want to prioritize incentivizing your sales team the most, as without them your businesses can dry up fast.
Compensations Fuel Competition
The number one motivation for salespeople is the competitive element of going in for a sale and racking up the most wins. Futhermore, as a result of commissions, workplaces often benefit from healthy periods of workplace competition that raises both morale and revenue. Competition raises the bar for effort and fuels a company culture of success and hard work.
Commissions Provide Stability
Commissions act as a form of measuring results, that provides both employees and companies with a sense of stability. Sales staff know exactly what they are contributing and companies can realize the level of success being achieved. This fulfills staff in their day to day activities and keeps the flame of motivation alive.
Commissions may also act as an alternative to subjective staff performance reviews that are based more on a belief of performance rather than data driven facts. Sales staff will be constantly receiving an accurate and effective review free of blame or bias. Both staff and the company overall have a strong understanding of how sales staff’s work is paying off and their value to the company.