Seven Different Ways to Remunerate a Salesperson

Sales commission isn’t always as easy as it looks

There’s a whole range of ways to compensate a salesperson. All of them have their plus points and the minus points. Let’s have a look at potential ways to make sure your salesperson earns their money in a way that keeps you and them happy.

Turnover

This is the most common way that salespeople get paid. It is simple. But it does come with a number of disadvantages. It is normally paid on top of a basic wage.

Pros – This is a very simple way to calculate commission. No-one can argue about how to calculate what is owed.

Cons – This doesn’t really work if your salesperson brings in work at too low a margin or brings in the wrong type of work for your company. Also, do be clear on exactly what turnover counts: For instance, are you paying commission on overtime, delivery charges etc.?

Tiered turnover

This works in exactly the same way as turnover, but commission increases for turnover over a certain level. For example, a salesperson earns a 3% commission on the first $500k of turnover and 4% commission on any work over the initial $500K.

Pros – This motivates salespeople to bring in more work.

Cons – It is not very motivational if the tiers are too high or if the extra commission difference is not enough.

Profit

Sometimes it is more realistic to compensate salespeople on profit rather than turnover. This means that their commission rate is higher than a turnover scheme, but is paid only on the profit of work that they bring in.

Pros – This motivates salespeople to sell work at the right price.

Cons – Many companies do not have a clear enough cost structure to be able to easily and clearly calculate the profit on a job. You also have to trust your salespeople as you will have to be a lot more transparent with your cost structures.

The right type of business

Rather than paying commission on every client, salespeople are remunerated when they win a specific type of work. This might be a profile of client, or it might be a specific specification of product or service.

Pros – This keeps salespeople laser focused on the type of work or client they pursue.

Cons – You have to be extremely clear and specific about what you want. There is a risk of disagreement on what counts as the correct type of business.

New work

Some companies only reward their sales team on winning new business. The sales person receives commission on new accounts, typically for 12 months. The client then becomes a house account and no commission is paid on it. The way the commission is calculated can be based on any of the structures I have already covered.

Pros – This prevents sales people from taking life easy and relying on the turnover from accounts they have had for a long time.

Cons – Sales people are not motivated to retain or grow accounts. It is frustrating for sales people when small accounts grow to a larger size after the commission cut-off period.

Activity

It’s important to ensure that salespeople actually carry out enough work. Rather than paying just on results, they can be compensated for carrying out the right activity. This is typically an additional element to a compensation scheme. For instance, commission on turnover is only paid if a sales person has also carried out the right activity.

Pros – This ensures sales people carry out enough work. They can’t just sit back having won a big account.

Cons – It can encourage salespeople to create activity for the sake of it, rather than because it is likely to bring in new business. One example I have heard is of salespeople requesting quotes that they have no chance of converting simply to meet activity targets.

Salary

Why pay commission at all? Pay a salesperson a decent wage in the first place and they should be happy to get on and sell.

Pros – The sales person never needs to worry about whether they will have enough money at the end of the month. It prevents them from looking for a new position if they are struggling to bring in work for a couple of months.

Cons – The salesperson may not be motivated to go out and sell as much as they are capable of.

So what’s the best way to pay your salesperson?

There is no simple answer to this question. It depends on the sort of work that your company is looking for and the sort of work that your salespeople are bringing in at the moment. It also depends on the type of person your salesperson is. What sort of direction do they need?

Bear in mind that not every salesperson has to have the same commission structure. And the right commission structure might be made up of a number of the ideas in this article.

Do you need more ideas on setting the right targets for salespeople?

I cover this is great detail in “How To Succeed At Print Sales”. You also learn how to create 12-week sales projects which are a fantastic way to get sales people achieving quickly as well as checking out how they actually perform.

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