Commissions are always the driving force between the sales team and how well they perform. A highly detailed and favorable scheme will keep the momentum going while guaranteeing the fair pay based on the sales they make. But that doesn’t mean that a single commission scheme will be enough. Market shifts all the time, and also the strategies along with it. So today we will discuss the 10 commission structures for the sales team.

1. Straight Commission

The most commonly used commission system that rewards heavily to those who make the most sales, making sure that talents and efforts are properly rewarded and nothing goes unnoticed. This way is suitable in high stake domains like automotive, cars and real estate.

2. Base Salary Plus Commission

Here a fixed salary is provided on top of the added commission on the number of sales they make. It guarantees that even if the sale cycle is low, they still get the base salary. In that same way if someone makes a lot of good sales, they get paid well.

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3. Tiered Commission

Tiered commission divides the percentage of commission received in tiers. For example, when someone starts new they are rated as tier 5 with a commission of 3% of total sale. But when they cross a target limit of 10 Lakh sales, the tier will upgrade to 4 and commission to 5%. This method transparently rewards those who work the hardest and provide them with a better earning opportunity.

4. Gross Margin Commission

This structure focuses on the profit margin during each sale instead of the total sale like others. This encourages the team to provide as little discount as possible and keep the closed deal above the cost of production. The commission rate is also rather big in this one, going up to 20% of the profit margin.

5. Residual Commission

This is used in subscription based scenarios where a single sale may recur over months or years. The sales team earns continuous commission each time the subscription is renewed, which guarantees a stable flow of commission even if the sale cycle is not that great at some point in the future.

6. Draw Against Commission

Yet another stable commission structure for uncertain or high risk businesses. Here an employee is provided with the commission at the start of the month, and then he is expected to recover that over the remainder of the month. In case he fails to do so, he can keep the original commission and recover it the next month. And if he earns more than the commission, then he can keep the entire amount. 

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7. Multiplier Commission

This adds a multiplier system like 1.1X or 1.2X along with the percentage. The factor may be based on the target, performance or something else. But the bottom line is, the multiplier goes up as the company makes more profit, which directly rewards the team and their efforts.

8. Territory Volume Commission

When a geographical area is targeted while making sales, the sales from that particular area is splitted among the team that worked on that area only. This provides a good earning potential while making sure that commissions are shared equally even if some members couldn’t make a lot of sales.

9. Absolute Commission

The team receives a fixed amount of commission for meeting the goal or target set by the higher ups. Sometimes the team can work on other tasks rather than sales, like contacting existing customers and asking them to upgrade their subscription during a festival offer. There is no percentage involved, just a straight up bonus for meeting the goal.

10. Profit-Based Commission

It works similar to the gross margin commission, but also adds additional costs along with the gross profit and turns it into net profit. Then the commission is counted from that amount. Usually the net profit is more than the gross one, and it’s mostly used in companies where making sales is absolutely paramount. 

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Commission is a tool that motivates the sales team to do more. Because as we all know, yes isn’t that common during calls and often they may get yelled at for being annoying. It takes more than just guts to stick around and close the deal, so it makes sense that the commission will also be equivalent to that. So, always make sure to use the appropriate method at the right time, or the sales team may become a loss team in the future.

Frequently Asked Question

Q1. What is the biggest difference between the straight and basic salary plus commission?

Ans. The straight commission structure is the most common one where the income is directly tied with the amount of sales you make. Top performers will definitely feel the happiest. While the bottom feeders will suffer even more and feel the most pressure. But the other one does the exact opposite. Instead of a sale based system, it provides a fixed income and commission, making sure that the high performers still enjoy the most, but the bottom feeders also stay financially stable during the bad times.

Q2. When should a tiered commission be used?

Ans. Use the tiered commission when you want to fully support your sales team with big incentives. The tier system will make sure that as they hit the new target numbers, more commission and benefits they get. It immediately motivates the team as one of their colleagues crosses the target and makes it clear that the tier system works and the extra efforts are worth it.

Q3. Is gross margin commission really worth it?

Ans. Yes, the gross margin commission rewards more for making profitable sales rather than the total number of sales. It encourages the sales team to not give discounts more often and keep the offer above the profit margin.

Sources:

1. 9 Sales Commission Structures (With Formulas and Examples) | Indeed.com

2. 10 Top Sales Commission Rate Structures & How to Choose Yours

3. What Is the Sales Commission? Types, Examples, & Formulas | Salesforce US

4. 8 Sales Commission Structures, Examples, and Benefits

5. 10 Sales Commission Structures & How to Decide What’s Best in 2024