Definition of Sales Force Compensation

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Sales force compensation can include salary, commissions or a combination.
Sales force compensation can include salary, commissions or a combination. (Image: Dynamic Graphics Group/Dynamic Graphics Group/Getty Images)

Sales force compensation pertains to the manner in which sales representatives are paid. Some sales reps have 100 percent of their wages or income guaranteed. This type of payment structure can be used to improve customer service, encouraging sales reps to spend more time with customers. Other sales reps have part of their income guaranteed, while the other portion is not guaranteed. Sales reps have to meet certain sales goals to earn income that is not guaranteed. The compensation of a sales force is often contingent upon the industry or other competitors.

Salary

The guaranteed portion of a salesperson's income is called a base salary. Most sales reps' salaries are between 15 and 40 percent of their total income, according to Online Business Advisor. The other portion is based on incentives. Most sales reps have certain quotas to meet. For example, a pharmaceutical sales rep may get paid $80,000 a year in salary. Additionally, he may be required to sell $2 million worth of medications in his territory to qualify for commissions. Consequently, he may earn an extra $20,000 in commissions for meeting his $2 million sales quota. Moreover, he may earn $40,000 extra by exceeding his quota by 10 percent, and $60,000 by exceeding his sales quota by 20 percent. Therefore, his total income could be as high as $140,000 if he produces 20 percent above quota in his territory.

Commission Only

Some sales reps' earnings are based on 100 percent commissions. Some may start out with a training salary for three months, for example, then gradually go to a full commission basis. Other sales reps start out at 100 percent commission right away. An advantage of getting paid on commission is that the sales rep's potential earnings are higher. When on commission, sales reps earn a percent of total sales in their territory. For example, a real estate agent may earn 3 percent on the sales price of each home he sells. Often, sales reps that are on 100 percent commission have established territories. In other words, they are contacting customers who have ordered in the past. Yellow pages sales reps working on commission, for example, may primarily contact current advertisers.

Bonuses

Some sales reps earn bonuses on top of salaries, or bonuses in addition to salaries and commissions. Bonuses are also based on certain sales quotas. For example, an industrial sales rep may earn a 2 or 3 percent bonus when reaching a certain sales quota. Bonuses are usually paid in lower percentages than commissions. They are also paid periodically, such as every quarter or year, unlike commissions, which are paid regularly.

Sales Incentives

Sales force compensation can also include certain non-monetary sales incentives. For example, sales reps can earn trips to Europe, the Caribbean or other venues for meeting certain sales goals. They can also receive big-screen televisions, laptops, office equipment and other free gifts for attaining sales goals. Sales reps will often work just as hard to receive non-monetary sales incentives as monetary ones.

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