Incentives drive sales, and one of the most common incentives businesses offer their sales rep is commission.
Commission is a type of compensation earned based on job performance. A commission based role entails hitting a certain benchmark – be it sales made, workers recruited, or services sold – to get a monetary reward.
When it comes to how much a sales rep should make, unfortunately there’s no definitive answer. It comes down to several main factors including:
- The commission structure used by a business.
- The type of goods or services sold.
- How good a person is at selling.
All of these will have a big impact on what a person makes in a day, month, or across an entire year.
So, while we can’t offer a definitive answer to the question “how much should a sales rep make,” whether you’re a business owner or a salesperson we’ve put together this guide to help you better understand the rewards to be reaped from a commission based role.
A Brief Guide to Commission Structures
One of the biggest factors in how much sales reps make is the type of commission structure used by a business. You might be surprised to know just how many different structures there are.
Here we’ll take a closer look at some of the most popular, so you can get a feel for what might work best for your business. While this is not a comprehensive list, we hope it gives you a better idea of what commission can look like.
1. 100% Commission
Known as straight commission, this is where a rep’s only form of income comes from the sales they make.
It has benefits for both business and rep. The business doesn’t pay a salary, and the rep gets to choose how much they work, with longer hours (potentially) meaning more money.
This structure is known to offer reps the highest earning potential but does mean a level of instability and high-risk which can sometimes lead to high turnover of sales reps.
2. Base Salary + Commission
One of the most common structures for commission, this is where the business pays it’s salespeople a baseline salary plus commission on top. The salary can be hourly or annual, depending on the business.
Unlike the first structure, this one puts responsibility in the hands of both the rep and the company. It gives reps more security and can reduce the pressure they feel.
3. Revenue Commission
Perhaps the most straightforward commission structure, this model is where a rep makes a percentage of the revenue of any sale. For example, if they sell a product or service for $1000, they make $100 – 10% of the total sales revenue.
The revenue commission model is easy to understand, and ensures that the highest performing reps see the biggest percentage of commission.
4. Gross Margin Commission
Gross margin commission differs from revenue commission in that reps get a cut of the profit, rather than of the revenue.
Revenue is the total sum made after a sale whereas profit is the revenue minus any associated costs. For example, if a product sells for $1,000 but there are costs of $300, the rep makes a percentage of the remaining $700.
This can have benefits for a business as it encourages reps to sell high ticket items to make more profit and thus more commission, and every sale supports the company’s bottom line.
5. Tiered Commission
Another common way companies find to motivate sales reps is by offering tiered commission. This is where the rate of commission rises with the amount of revenue a rep generates.
For example, a rep might earn 5% on sales with a revenue of up to $20,000 and once they’ve hit this milestone the percentage could rise to 8%.
Following this structure motivates reps to make more sales in order to increase their income incrementally.
How to Increase Commission
There are some ways that businesses and individual salespeople alike can see a boost to their sales, and therefore commission.
Know the Attributes of a Seller (And Work On Them!)
While it can sometimes feel like some people are natural born sellers whilst others are not, that’s not necessarily true. Several things make a good salesperson, and we believe that these are things that can be worked on over time.
When it comes to employing (or becoming) the best salesperson you can, here are things to concentrate on perfecting:
Interpersonal Skills – In this line of work, you need to be a “people person”. This doesn’t mean being a life-of-the-party extrovert, it just means being able to talk to and relate to others with warmth, interest, and personability.
Knowledge and Enthusiasm – Let’s face it, no-one’s going to buy a product or service from someone who doesn’t understand or seem to like what they’re selling. Knowing what you sell inside and out is half the battle of being a good sales rep, and the other is being able to convey how it will benefit the customer’s life.
Goal Oriented Nature – Making more commission is all about hitting targets, so people who are goal oriented understandably make better salespeople. While some people are more goal oriented by nature, if the rewards are great enough a leaning towards goal oriented focus can definitely be influenced.
Invest in Training
Knowledge of and enthusiasm for a product can only come from training. So it’s important to invest in regular training that gives your team and understanding of what they’re selling. Failure to prepare is preparing to fail, as they say!
Listen to Your Customers
The saying goes “the customer is always right”. By listening and playing close attention to your customers, you’ll be able to find out what they need – and this applies both on a macro and micro level.
On a macro level, listening to your customers means business leaders hearing feedback and adjusting their business offering to suit. On a micro level, it means salespeople paying close attention to the customer’s needs and suggesting products that will solve a problem in their lives.
Sales Rep Extension for Magento
The Sales Rep Commission Manager Extension for Magento helps you manage sales representative performance with sales reports and many options for managing commission.
It allows you to implement different strategies as seen in this article. You can create sales reps with different commission rates and even managers.
Final Thoughts on Commission
Like everything in life, a commission-based role has its positives and negatives.
While it’s hard to put an exact figure on the amount a sales rep should make, it’s clear there are huge benefits to be reaped from commission. However, there are risks that should be taken in consideration as well.
Whether you (or your team) succeeds in sales will depend on their skill, drive, and most importantly, their ability to interact with customers in an engaging way.