What is Sales Commission?
Sales commission is the amount sales professionals receive from your company to complete each sales transaction. Most sales-focused organizations add a percentage of sales commission to the base salary of the sales reps. Sales commissions incentivize the team to go the extra mile, and are used to reward and retain top talent.
How to calculate Sales Commission?
Here’s how you can calculate sales commission:
Sales commission = sales price * commission rate
For example if the sales price of a software solution is $20 and your organization opts for a commission rate of 10% on each sales transaction. In that case, the sales commission received by the sales reps will be= [20 * (10 / 100)] = $2.
If the sales rep can sell 10 solutions monthly, they will get a commission of = (10 * 2) = $20.
Why does sales commission matter?
A well-executed sales commission structure can motivate your team and improve productivity. Sales, especially in B2B involves a long sales cycle, and it requires persistence, and consistent efforts to ensure closure. A structured sales commission policy ensures the salespersons are rewarded for their efforts, and helps in retaining top talent.
Sales commission tips for every business
Here are some tried and tested tips to improve your business:
1. Go for a simple sales commission structure
Your compensation structure should be simple enough for everyone’s understanding. A simple plan that sets clear expectations is very easy to implement. Your sales reps are already dealing with lots of challenges. The last thing they need is a complicated compensation structure where they cannot figure out the basics. Make the compensation plan so simple that sales reps can plan like this - “If I complete $XXX amount of sales in a month, I will get $YY compensation.”
2. Consider your most valuable products
For startups and medium-sized organizations. There may be some financial restrictions. Hence, these businesses should plan their commission structure strategically.
Not all products do well, and there’s no point in implementing commissions on each. Rather, SMEs should offer commissions on selected products with higher selling prices and a larger potential to get sold.
With this strategy, sales teams can improve their sales margins and increase the average number of orders for these products.
3. Make data-backed decisions
Sales commission structures shouldn’t be based on assumptions. Rather, sales managers should analyze all the existing sales metrics and get a real-time overview of the performance of each sales professional. This can help them plan suitable commission structures that can be easily followed.
4. Set practical goals
While setting the sales goals, sales managers should keep in mind the reps, their experience, skills, and capabilities. Unrealistic goals can only lead to rep burnout. Managers should closely monitor the historical performance of the reps closely and plan attainable goals for them.
5. Your commission structure should be aligned with business goals
An appropriate sales commission strategy is where business goals and sales goals are connected. Once you implement this, the sales team won’t have divergent goals. Instead, there will be one unified goal, and each sales professional in the team will put effort into achieving that goal.
Calculate your sales team's commissions with this Excel/Google Sheet template. Determine how much commission each salesperson earns based on their sales performance with our sales commission calculator.
Frequently Asked Questions
Sales commission rate depends on various factors like industry type, product type, size of the organization, and so on. There is no one average commission rate in sales. However, typically in the B2B SaaS industry, the commission rate is approximately 10%.
Sales commission is a variable cost as it depends on the ability of the sales professionals to achieve their sales goals. For each sale they make, they are subject to a commission.
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