The Top 7 Sales Commission Plans of 2023
Did you know that the average sales commission is between 20% and 30% of gross margins?
However, there are a number of other sales commission structures out there. This can allow for commission rates of anywhere between 5% and 100% of gross margins. Since there are so many commission structures, businesses can choose the structure that aligns best with their goals.
It's important to understand the various commission structures before choosing one for your business. Even then, you're not limited to the popular options themselves. You can draw from these structures to create a custom solution for your business. This is often the most effective method.
Interested in learning more about the various sales commission structures? Here's a quick guide on the basics of commission structures, along with some of the most popular options.
The sales industry is incredibly competitive. However, this industry is vital to ensure that businesses meet their operational goals. Within this industry, compensation is used as a tool to help motivate sales staff toward the organizational goals of the business.
Sales Commission Plans
Sales commission plans are the structure that guides the commission that sales employees earn. These structures can vary depending on the business and industry that you're in. Some commission plans are more effective than others, so it's vital to find and implement the right structure.
How Commission Plans Work
Commission structures tend to work on a percentage basis. This percentage can vary depending on the structure that you're using.
In most cases, a certain percentage of the gross margin is given to the sales member that's responsible for the sale. The gross margin refers to how much profit the company made on that sale.
The percentage itself can grow, shrink, or stay the same depending on the structure.
Popular Sales Commission Plan Options
When it comes to sales commission plans, there are a few popular options to consider. Each of these commission structures comes with its benefits and drawbacks. It's important to compare and contrast them all to find the most optimal structure for your business.
To help you find the perfect commission structure, here's a brief overview of the most popular options.
1. Fixed-Rate Commissions
Fixed-rate commission is one of the simpler commission structures. This structure simply states that a salesperson will earn a fixed percentage of the gross margin on a sale. This percentage stays the same regardless of how many sales the employee makes.
In most cases, this structure is offered without a base salary. This incentivizes sales staff even more.
2. Sliding Scale Commissions
A sliding scale commission structure allows for change depending on how many sales are closed by the employee. This structure is based on volume and not on revenue or gross margin. This means that the percentage can increase when you sell more, regardless of the price of the product.
3. Performance-Based Commissions
If you want to encourage your staff towards specific goals, performance-based commission structures are ideal. This structure pays depending on how well you perform towards specific targets. These targets can be based on the business or on individual performance.
4. Gross Margin Commission
Gross margin commission basically allows salespeople to earn income based on the profit of the product being sold. This incentivizes employees to upsell so that they can earn the most commission on every sale.
5. Tiered Commission
A tiered commission structure is ideal to encourage salespeople to close even more sales. This structure pays out a certain percentage as a commission up to a certain revenue goal. Once this goal is achieved, the commission percentage increases until the next goal.
6. Revenue Commission
The revenue commission structure is ideal for businesses that want to focus on larger goals compared to profit. This is because the commission percentage is based on revenue and not on gross margin. The percentages may be smaller, but the overall commission stays relatively competitive with other kinds of structures.
7. Territory Volume Commission
The territory volume commission structure is ideal for teams that operate in a specific region. This model allows salespeople to earn income based on the rate for that region. The amount of compensation depends on territory volume, where a commission is split between everyone in the area.
How To Choose a Sales Commission Plan
As you can see, there are a few different sales commission plans that you can choose from. Each of these plans is unique and can offer various benefits to your business. It's important to research and understand the options before making a final decision for your business.
It's vital that the commission plan that you choose aligns perfectly with your business goals. This is the best way to choose a plan that's effective for your individual business.
You're not always limited to one specific plan. This is because you can take elements from various plans to create something more tailored to your business. This is often the most effective option to consider.
Optimize Your Sales Commission Structure
The sales commission structure that you choose can help incentivize your employees. In this way, the compensation structure is a powerful tool to help you achieve your operational goals.
Managing your commission structure has never been easier. With the help of Kinitro, you can create and manage your commission plan effortlessly. To make everything easier, you can even link it directly to your payroll so that employees understand their compensation clearly.
If you want to learn more about the benefits of Kinitro, request a demo today.