How to Devise a Sales Commission Scheme

Commission Schemes - Ideas on various commission schemes, bonus schemes and sales incentive schemes by Rob Scott, Managing Director, Aaron Wallis

 

So is it really all about the money?!! Undoubtedly good sales professionals are looking at incentive and commission schemes to drive them onto higher sales performance.  Sales commission schemes, bonus schemes or annual bonus is the norm as part of a sales benefits package yet there is little information available to help companies that are looking to redesign or introduce new schemes.  In this article we detail various ways to devise commission schemes that work but also look at other was to recognise and reward top performance. We hope that it has a few ideas in it that could be right for your business.  

Why Doesn't One Scheme 'Fit All'

It is very difficult to generalise or to propose a panacea commission scheme, as what works for one company may not work for another. However within this article we offer a handful ideas for you to construct the best sales incentive scheme for your team and business.

The right method is entirely based on your company culture and the type of way you secure sales, the 'toughness of the sale' involved, the level of the employee's input required to secure sales.  It also has to be based upon the size of orders won, the GP within these deals, the amount of competition and many other contributing factors.   However it must be remembered that commission schemes need to be kept simple so that it achieves the objective of driving sales staff to greater sales performance.

Within reason, it is common to pay a lower basic salary (than employees at a similar level within your business) and higher bonuses or commission that will often take the overall package to be higher than other members of staff.  With increased risk, daily rejection and other obstacles in their path it is quite right that top sales professionals should earn more than staff in other departments.  If you don't recognise, incentivise and reward your top sales performers you will undoubtedly lose them.

The Goal in Devising a Commission Scheme that Works

For the employee the scheme has to be clear and motivational to serve the purpose of driving them on to bigger and greater revenue numbers.  

From an employer's perspective it has to sensible (i.e. not paying bonus on bad business) AND be easy to calculate.  

Monthly or Annually?

An idealistic commission scheme for sales employees would be both monthly and annually - perhaps an annual override for exceptional performance (as each payment term motivates different behaviours).  

Paying sales employees monthly commission incentivises immediate action. Because the selling environment for many companies can vary seasonally, implementing a monthly commission programme offers management the ability to rapidly react to changing market needs and trends.

Annual commission drives consistent top performance particularly if it an accelerated scheme based upon achieving more than is expected of the sales professional.  If an annual commission scheme is implemented, it could also be based on total company performance so staff can promote each other's behaviour and be held accountable for helping to achieve the company's principle objectives.

Play Fair

If multiple salespeople do the same job, their commission compensation schemes should be equal. Mr. Williams would not be pleased if he knew that his colleague Mrs. Avery was receiving a better compensation scheme. This could provide friction within a team and could consequently leave to higher levels of staff turnover. However, you might want to reward salespeople through higher base salaries for length of service, experience or exceptional performance. But, most importantly, be very, very, very clear with all of your sales staff and apply any differences consistently.

When you choose a pay system for your business and sales employees that pays by results, you will need to consider whether to top up workers' earnings with payments such as commission, bonuses, tips and gratuities.

Read More about Devising Sales Bonus Schemes

 


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