Outside Sales Rep Commission Pay Structure

Sales representatives provide solutions.

Successful sales professionals share many key characteristics. These action-oriented professionals possess self-confidence and stellar interpersonal skills. Most sales professionals work on a commission-only basis, or a salary plus commission payment plan. Often these plans are uncapped, meaning there is no ceiling on earnings. Sales achievements determine take-home pay. In addition to a lucrative compensation plan, a career in sales offers inherent rewards. Selling a customer what they need means providing a solution.

Straight Commission

Sales representatives who work strictly on commission have no salary guarantee. Without the assurance of a set wage, sales professionals must maintain a consistent level of motivation to succeed. Typically, the commission schedule is generous enough to offset the risk for high achievers. The advantage of a commission-only plan is simplicity. It is easy to understand because the commission earned is a percentage of the sales contract. To assist representatives with cash-flow issues, companies often disburse a draw against commissions on a regular basis.

Combination Plans

Often sales representatives receive compensation in the form of a salary-plus-commission scheme. Clear documentation is important when communicating plan elements to the sales force, as there are a myriad of ways to design a combination plan. The salary-to-commission ratio can be set high, meaning the base pay percentage exceeds the variable, or commission portion. These plans are more complex than straight commission scenarios due to a variety of elements that companies may draft into the plan. For example, in addition to earning compensation on sale dollars, the plan may call for developing new accounts, upgrading previously sold customers or obtaining a specific profit margin plateau. Each element may receive a different weighting, which further complicates a sales plan.

Bonus Plans

Another type of sales compensation scenario involves paying the sales representative a salary plus bonus. The incentive compensation is only paid out if the sales person exceeds a specific goal. In these types of plans, goals are often set high enough to require considerable effort and hard work. Typically, the bonus is lucrative enough to gain the attention of the sales force. Companies often employ such bonus schemes when trying to challenge the sales force to exceed previous year’s growth, lure accounts away from the competition or meet another strategic goal.

Other Commission Plans

In some industries, representatives earn continued commissions, called residuals, during an extended period of time. For example, a salesperson selling insurance policies may receive a residual commission on an annual basis providing the client continues to pay premiums. Another scenario involves second tier commissions. These commission plans are common in some multilevel marketing programs. Typically, recruiting other sales personnel and building a team is necessary. When the recruit makes a sale, both the recruit and the team leader earn a commission.

References

• Inc.; How to Set Up a Sales Compensation Plan; Elizabeth Wasserman; December 2009
• Rep Hunter; Determining Compensation for Independent Sales Reps; August 2010
• Valitus Group Inc.; Core Sales Compensation Plan Elements; J. Mark Davis
• Sales MBA; Sales Compensation Plans: Challenges and Opportunities; David Berger
• Click Quick: The Power of Residual Commissions
• All Merchants: What is a Tier in Affiliate Marketing?