Creating The Right Commission Structures For Your Salespeople

Commission structures are perhaps the best way to motivate employees to sell; they are direct rewards for salespeople. But with so many varied commission structures out there, the big question for retailers remains: What percentage of pay should be commission-based and what percentage should be salary-based?

All too often, commission structures in cellular retail aren't well conceived. Some retailers use fixed-rate commissions whereby a salesperson receives, for example, each time he/she sells a particular handset. This doesn't work.

Verizon Cell

In order to get the results you want, commission structures must be calculated as percentages. Retail executives need to decide upon a balance between how much to pay salespeople (per commission) and what they deem suitable compensation for their sales efforts (on top of their salary).

"To create a compensation package that's fair to both parties, consider what it is you are actually paying for," advises Keith Rosen, executive sales coach for Profit Builders, on his blog. "Focus on paying for the results... For example, what are you willing to pay for a 50 per cent increase in sales (or more)?"

Calculating the right commission structure isn't easy - it can be complicated. But it's important to consider the factors at play in your retail business. Rosen says calculating a salary-commission combination depends on a number of factors, such as your sales cycle, average sale (dollar amount), industry (in this case, cellular retail), local and state laws, cash flow, profit margins, how your company is set up (S-Corporation, C-Corporation, L.L.C, sole proprietorship), customer payment terms, the number of salespeople you need and whether or not there is some type of residual income that the salesperson makes on each sale.

"Ask your accountant or attorney what they feel the most appropriate compensation plan would be for your salespeople," adds Rosen.

Marcus Markou, Chairman of Dynamis, a London-based business publication and consulting company, says the trick to structuring sales commission is to strike a balance. "Create a commission structure that rewards team members on retaining customers but also (offers them the) incentive to sign up new customers."

Markou says an effective commission structure should be adjustable to how your business is going. He used to run a sales team for Dynamis and structured his staff's commissions separately, to encourage expansion - recurring customer revenue (1-3 per cent) versus 'new money' (10 per cent). As the company grew, the commission structure changed.

"Today, we are moving towards new structures that are more appropriate for a company becoming increasingly focused on new sales," he explains. "Ultimately, you have to come up with a structure that suits the culture of the company and supports what it is you're trying to do."

Creating The Right Commission Structures For Your Salespeople

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