A fair commission uses a base that reflects real value to the company, such as collected sales or gross margin, with rates and tiers set in advance. It is completed by written rules for returns, discounts and collection that let reps calculate their own commission.
Step by step
- 1
Choose the commission base
Sales value is easiest to calculate, collected sales protect cash flow, and gross margin discourages selling on heavy discounts.
- 2
Balance fixed and variable
A fixed salary covers the basics and commission rewards results, and the variable part grows the more the rep influences the buying decision.
- 3
Set the target and tiers
One rate up to target and a higher rate above it to encourage going further, with a threshold before commission starts if you need one.
- 4
Write down special cases
Returns, customers shared between reps, unusually large deals, and commission due after a rep leaves.
- 5
Tie payment to collection
Pay commission after the sale, or part of it, is collected, on a fixed schedule the team knows.
- 6
Test on past numbers
Run the plan on the last period's sales to see its cost and how it spreads across the team before announcing it.
A common mistake is changing commission rates mid-period after a rep hits a big number. Announce any change before the next period, or the team loses trust in the whole system.
- sales commission structure
- how to set a sales rep commission rate