An essential part of a sales-based organization is the commission structure it lays out to enable its sales teams into bringing in higher revenues. The type of commission structure a company opts for is dictated by several factors: the sales cycle duration, the type of product they sell, the core markets they sell it to, and the type of commission incentives that motivate their sales teams.
Commission plans range diversely from company to company. Why? Simply because the same plan cannot work for all! It is important to know the different ways to enable sales with commissions. Take a look at these:
Low Commission, High Salary
This plan works great for many businesses, and is the most common commission structure used by businesses. For companies that rely heavily on inside sales and employ a sales team that makes cold calls to potential target market from the office, a “low commission, high salary” plan is made for you. After all, who would mind receiving a guaranteed hefty paycheck every month with an additional amount for making phone calls?
Territory Volume Based Payments
If your company operates on territorial sales, you’re best off introducing a territory based payment plan to your sales team. It is important to note here, that this plan is most effective only if your territories are rich in your target customers. If you set your sales team to work in areas that do not contain your target market, this commission structure will most likely fall flat.
Each member of the team is evaluated on the basis of sales they generate in their territory. Since areas are adequately distributed, there is no customer poaching among reps, and each sales rep has the liberty to work towards achieving their territory sales targets for better commissions.
Target Based Commissions
There are companies that pay out commissions based on achievement or non achievement of sales targets. This motivates sales reps to go an extra mile to achieve the targets set for them in order to win a commission. However, this commission plan is often dysfunctional despite all efforts. The reps are unable to hit targets because of the variances in the sales and commission cycles, and/or inappropriate product pricing.
To overcome that, most companies resort to setting benchmark targets and evaluate commissions based on how close the reps come to achieving those.
Wholesale vs. Retail
Businesses operating in both wholesale and retail markets often offer different commission rates for their sales reps in the retail and wholesale factions. The rates are often determined keeping in view which markets the company wishes to focus on. Although, if one does the math, the payments for both may turn out to be almost the same, but the companies have the liberty to set any commission strategy they deem appropriate.
A Share of the Profits
A number of companies even give out commissions based on their net profits. Net profits are derived after deducting cost of sales, operating and non operating expenses of the business from the gross sales revenues. The amounts set aside as commission therefore, are usually not truly representative of the efforts of the sales reps. This may lead to a demotivated sales team.
To keep up with the fast growing automation trends in every industry, one needs to grab every opportunity of gaining competitive advantage over its competitors. The CallidusCloud Commissions allows you to streamline your commissions and sales reps’ performances into a comprehensive software – designed to provide businesses like you with flexibility, and improved productivity. Take a product tour today`!
Suggested reading: Five Behaviors Your Commissions Plan Should Be Driving (But Probably Isn’t)