How Does Sales Commission Work?
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Commssion is Incentive Pay for Salespeople
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Sales commission is extra pay that a salesperson receives for successfully making a sale. The more sales the salesperson completes, the more commissions he earns. By offering a sales commission, companies force their salespeoples' incentives to align with their own: to sell as much product, as efficiently as possible. One worker who is paid an hourly wage can earn the same amount as another who works twice as hard. Under a commission system, the worker who produces the most is compensated the most.
Types of Commission
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All commissions involve paying a salesperson for making a sale, but how commission is calculated varies. Often, sales commission is a straight percentage of the value of the item sold. A real estate agent might make a 3 percent sales commission on all sales, meaning they get 3 percent of the valve of any home they manage to sell. There can also be flat sales commission, where a salesman gets a nominal amount for any sale. An example would be a car salesman who earns a $500 commission for any car he sells. Commission can also come in the form of a bonus system that rewards productive salespeople periodically for overall sales performance instead of each specific sale.
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Benefits and Drawbacks of the Commission System
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The main benefit of a commission system is that it rewards success and productivity, and gives salespeople potentially limitless earning potential. This often results in more motivated workers, who are willing to work longer hours. One major drawback of a commission system is that consumers often dislike working with salespeople who work on commission, because sales people with a vested interest in making a sale can be pushy and imposing, even if the customer shows little interest. Another disadvantage is that some workers get little and sometimes no pay apart from their commission, so if they do not manage to sell product, they receive little or no pay, which makes for a stressful work environment.
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References
- Photo Credit commission image by Christopher Hall from Fotolia.com
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Comments
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Great article on commissions, I agree it's always important to keep attitude in mind and not be pushy as a sales commission worker. Thanks for sharing! Janet Commission Sales.
