Learn About the Types of Commissions in Sales Jobs
When people start looking at sales jobs, they often assume that there’s a commission involved – but that’s not always the case. Many sales jobs do include a commission. Some pay only commissions… some offer a commission but also pay a set “base” salary… and some don’t pay any commission at all.
Many retail sales jobs don’t pay any commission, especially for new salespeople. The associate is paid a flat salary regardless of how much or how little they sell.
This salary-only type of job can be comforting to a new salesperson since your income isn’t dependent on how well they sell, but it can quickly become frustrating. Many salespeople are money-motivated, so if there’s no ongoing incentive for selling well, they’ll either find a new job or stop trying.
Base Plus Commission
Sales jobs offering a base and a commission can offer the best of both worlds. Salespeople are rewarded appropriately for successful sales but don’t have to worry about starving if they have a bad month. Often the commissions won’t kick in until the salesperson reaches a specific goal, such as a certain number of sales or a minimum revenue amount for the period.
Most of these positions pay out commissions throughout the year, often on a quarterly or monthly basis. However, some employers will set up a “base plus bonus” schedule instead, in which a salesperson won’t receive anything above his base salary until the end of the year.
Bonuses are typically based on meeting or exceeding certain preset goals, but these may not all be directly sales-related. For example, the bonus might be partly based on customer feedback.
Pure commission sales jobs are just that – the salespeople are only paid according to what they sell.
If a salesperson makes no sales during a month, he doesn’t get paid. However, successful salespeople tend to make a lot more money with a pure commission job than with the equivalent base plus commission job.
Some pure commission jobs offer a safety net in the form of a “draw against commission.” The company pays its salespeople a set amount at the beginning of each period. At the end of the period, this prepayment is deducted from however much the salesperson earned in commissions. If the salesperson earns more commissions than he was paid in the draw-down, he keeps the extra money. But if he earns less in commissions than his draw-down, he must pay the remainder back to the company.
Types of Commissions
In commission only or base plus commission jobs, the commission can be calculated in two basic ways: straight or variable. Straight commissions are calculated as a set percentage or amount per sale. For example, if you’re selling cars you might receive a commission of 10% of the sales price for each car you sell. If you’re selling gym memberships, you might be compensated a flat $25 per sale. Variable commissions are a bit more complicated, changing as you reach certain goals. For example, someone selling cars at a different dealership than the above example might make 5% on the first ten cars he sells within a given period and 15% on any cars he sells after the initial ten.
In rare cases, a sales job will also pay residual commissions. This means that the salesperson will continue to receive commissions as long as a given account is active. Residual commissions are occasionally offered in insurance sales, for example – as long as a client keeps paying premiums, the salesperson keeps getting compensated.
What’s Right for You?
A brand-new salesperson would probably be best off in a base plus commission job. That gives her a little breathing room while she learns the ropes and gains experience, yet offers a higher level of compensation as she gets better at selling. Experienced salespeople tend to focus on making as much money as possible, so they often prefer commissions-only positions. A really good salesperson in a pure commission job can make a great deal of money, particularly in a job where she’s selling high-end products and services.