A sales commission structure is a form of compensation scheme used by businesses to compensate their salespeople. On top of the base wage, this frequently includes commissions, bonuses, and other incentives. If sales commission is a variable component of a total sales incentive package, the sales commission structure governs how much sales commission can fluctuate.
A salesman might earn 20% of the income earned by the sale in a hypothetical commission arrangement. This means that if they sell $100,000 in products while working for the company, they will receive $20,000 in commission payments.
For individuals who are unaware with various sales commission arrangements, below are some most widely used:
Commission Multiplier
The foundation of multiplier commissions begins with a basic revenue commission percentage. This percentage is multiplied by an agreed-upon value based on the achievement of a salesperson’s quota. A multiplier plan allows sales representatives to earn more money as they advance in their careers. Several businesses see this as a low-cost strategy to increase consumer acquisition and sales.
This sales commission scheme is effective at incentivizing sales representatives to sell more and earn more money. However, it can be challenging to execute, particularly for companies that are unfamiliar with multiplier sales commission schemes and that’s when we need commission management software for SaaS.
They are not only complicated to set up, but they also require continual monitoring and tuning to work properly.
Multiplier commission systems enable organizations to offer varying degrees of remuneration for varying levels of performance, similar to how salary ranges are normally calculated. This ensures that all salespeople are evaluated using the same set of criteria, with an emphasis on core values and performance.
However, there are some drawbacks.
A salesman may not fully comprehend their commission and how the pay scheme operates. This lack of transparency can be very frustrating for those who want to know how much they will make daily.
The multiplier commission structure can make tracking salespeople’s success and leads more difficult, especially if they are not in command of their region or do not have a dedicated manager. Companies, on the other hand, can address both of these issues by explicitly outlining the commission structure, leaving no space for ambiguity or uncertainty.
Structure example:
- A normal 10% commission is earned by a sales representative.
- If they reach 90% of their quota, their normal commission is multiplied by 0.9. Their new commission rate would be 9%, and so forth.
- 75% of the quota: normal commission multiplied by 0.8 = 8% commission
- 50% of the quota: normal commission multiplied by 0.6 = 6% commission
- 40% of quota or less: normal commission x 0.4 multiplier = 4% commission
Commission On Residual Sales
A residual commission structure is particularly popular in high-budget, long-term clients, such as investment banks, consulting businesses, and insurance companies. Customers have an ongoing relationship with the company that can be fairly expected to last for an extended period of time. This also implies that the amount of commissions generated is significant.
The seller is incentivized to sell as much as possible under a traditional sales paradigm. Sales people get commissions under this strategy as long as the accounts they generate continue to generate money. Because this sales commission structure practically incentivizes sales representatives to maintain great relationships with clients after the original contract signing, it motivates them to provide a more personalized and consistent experience for customers.
This strategy offers a more sustainable way to expand and scale your company while minimizing the chance of failure. It’s a win-win commission structure since it assures that sales agents do everything they can to retain customers in order to maximize their rewards, while the company benefits from greater revenues.
Structure example:
A client agrees to pay $5,000 for a company’s services. If the commission is set at 6%, the sales rep who brought the client on board will receive $300 commission for as long as the client continues to pay the company.
If a sales professional keeps 50 of these clients over time, they will earn $15,000 in monthly commissions.
The structure of your sales commissions can make or break your business. Our goal at ElevateHQ is to maximize profit while minimizing expenses. Companies can get both benefits with the correct sales performance management software. The sales commission structure and the future of sales are just around the corner.
