a complete guide on how to define and structure your team’s payment – WAU
Establishing the type of sales commission in your company is very important so that salespeople are aligned with their business goals and know how much they will earn for it. In this post, we bring you all the information you need to choose the ideal model for you.
Many professionals who work with marketing management strive to bring more and more business opportunities that must be turned into sales by the sales team. THE sales commission is often the main motivator for salespeoplebecause the more customers they bring to the business, the more money they earn!
But which points are important to develop the commissioning plan? And what are the main types of commissions on the market?
To answer these and other questions, we have written this guide and invite you to read it through!
What should be taken into account to set up the sales commission process?
To choose the commission model to be applied in your company, some considerations must be made. Here, we point out the main ones.
Before determining what type of commission will be applied to your business, it is necessary to establish which goals must be achieved by the company in order for it to reach its objective.
Thus, each salesperson will know that, despite being commissioned, he must strive to achieve the necessary goal for the business.
Next, you need to determine what the sales rules and your commissions will be. This step is very important so that everyone is aligned with how much they need to sell and how much they will earn for it.
If your business has seasonal periods, when sales may increase or decrease, it is recommended to consider them when determining commissioning. After all, times of higher demand, for example, may have a different commission scheme due to the high volume of sales and vice versa.
Period between sale and payment
This point is of paramount importance for the company’s financial health. There are cases where the commission is paid to the seller at the time of the sale, and others when he has to wait for the next month or wait for the payment of the purchase to reach the cashier first.
Knowing which of these models is the most appropriate is part of the process of choosing which type of commission to use, a topic we will talk about now.
What are the types of sales commission?
We have gathered here the main types of commission in sales teams so that you can choose the most appropriate for your business.
In this type of commission, sellers can receive a percentage corresponding to each sale made. Payment can be made at the time of sale, or at the end of the month, along with the salary.
It is a type of commission that is easy to understand. However, you need to be aware of a few points before setting this commission pattern in your business.
For example: if your customers pay with a credit card and you settle the commissions with your salespeople at the time of sale, you need to have cash on hand for that, since the payment made by card will only arrive at the company’s account in the following month .
Another example: if your product has a very high cost, the percentage determined for the commission can also get in the way. After all, if the profit margin is low, when paying the commission, the sale must be worthwhile.
Commission and salary together
Companies that have a commercial team and pay both fixed wages and commissions usually adopt this model.
In this case, the commission can be either fixed, that is, pre-established on the value of each sale, or variable, as it changes according to the goals determined by the company.
Let’s look at an example of a fixed commission. If an employee sells 10 products, he earns 5% commission. If he sells more, the percentage of commissions increases.
As for variable commissions, beforehand, the seller knows if he can earn more. Thus, depending on the type of sale he makes, the commission may be higher, which encourages him to sell more, considering that he will earn more.
In addition, paying a salary also demonstrates that the salesperson’s work is recognized by your company, not just sales made by him. Especially because the sales team usually has other tasks in their work routines, such as:
On here, all the money the employee earns comes from closed sales commissions. According to London law, this type of commission gives the seller the right to a minimum wage if he is unable to sell well during the month.
The benefit of this sales commission model is that salespeople will strive to sell as much as they can. If they are successful, your business wins.
If they are not, your maximum spend will be on a minimum wage (which is much more than the cost of a senior salesperson, for example) for each.
If you choose this model, leave your employees who receive pure commission armed with all the tools necessary to sell more, in addition to investing in training such as the Inside Sales Course at Websites Are Us University.
The billing commission is calculated based on what the company was able to bill in the previous month. That is, the billing is equivalent to the total of what was sold and collected before the costs were removed.
So, if your business earned R $ 50 thousand in the month and the commission established for the commercial team is 5%, the salespeople will receive a total of R $ 2,500.00.
Profit margin commission
This commission model occurs when the seller receives a fixed percentage per sale, however, the commission calculation is based on the profit generated at the end of the month.
Gross profit is calculated using the difference between billing and total business costs. For this reason, it is a more sustainable type of commission for the company, since the seller will receive the commission for what actually went into the company’s cash.
Let’s assume, for example, that your product costs R $ 2,000.00, with a profit per sale of R $ 1,000.00 and you have set a 10% commission on top of that amount. This means that each employee who sells it will receive a R $ 100 commission.
Commission for receipt
This is a commission model aimed at companies that make installment sales and receive their value in installments.
The advantage of this type is that it allows you to have more control of the money that comes into your cashbecause commissions are passed on to sellers only after you receive payment for the portion of the sale.
The staggered commission determines a progressive increase in the percentage that must be paid to the seller. For example:
- if he sells R $ 5,000, he receives a 5% commission;
- if you sell between R $ 10,000 and R $ 20,000, your commission will be 10%;
- and so on.
This is a model that encourages the sales team to get better and better, because the more they manage to sell, the more they will receive for it.
In this type of sales commission, a fixed amount is established as the commission the employee will receive. For example: a seller earns $ 500 in commission for each product sold.
Even though it is a fixed amount, it can stimulate the sellers, who will try to sell more to earn more money on the sales volume.
Here, there is a limit on commissions that each seller can earn. For example: if the company determined that R $ 20 thousand is the maximum cap that each employee receives in commissions, once this value is reached, nothing more is gained, even if he sells more.
Some say that this type of commission is not the best way to motivate the sales team, as salespeople can settle after reaching the limit of commissions, presenting a poor performance.
In this type of commission, the seller receives an “advance” of the money to start selling the product or service.
The expectation is that he will sell more than the amount given until the end of the month and that it will be deducted from the commission at the time of payment. Even because, if the seller does not reach the target set by the business, he must return the money that was borrowed.
If, on the one hand, this model is good for beginning salespeople who strive to close sales, on the other, it can be demotivating for professionals who have more experience in working with sales.
Residual commission is a type of commission in which the seller keeps receiving even after the sale is closed, as long as the customer remains active.
This model is not very common, but it can be applied to businesses that work with subscription services, for example. Thus, with the condition that the customer continues to pay the recurrence, the seller receives a percentage on top of that.
Commission by territory
For companies that work with customers in specific regions, commission per territory can be a good way out.
After all, it allows sales teams to focus on increasing the number of customers in a given region, in addition to encouraging teamwork, since all salespeople are paid for sales in the region, not individually.
These are the 12 main types of sales commission with the greatest presence in sales teams. If you are about to choose one for your team, we recommend a thorough analysis of it in order to make the right decision.
In fact, in addition to understanding how sales commission models work, if you also want to know how to manage, qualify and scale your team, download this e-book and learn how to structure and optimize your sales team to achieve incredible results!