When evaluating a sales agency, it’s important to consider the commission structure. You can opt for a base salary + commission or a tiered commission plan. But which one is the best option for your company? Here are some of the potential benefits and disadvantages of both. This commission model is a great fit for team-oriented companies that reward collaboration.
Base salary + commission structure
The base commission based sales agency structure of top commission based marketing agencies is a great option for companies that are seeking to attract and retain top sales talent. The most common type of commission structure is 60:40, where 60% of the salary is a fixed base salary and the rest is variable, based on performance. Pharmaceutical sales, for example, often use a 75:25 structure.
The most effective commission structure should align with industry averages, including a competitive base salary plus a sales commission. For example, the salary of an SDR in the SaaS industry in San Francisco is usually between $50,000 and $80,000 per year. This commission structure should also align with the company’s culture and motivate its team members.
Tiered commission structure
When it comes to commission structures, a tiered commission structure is a great way to motivate your team to close more deals. This structure is especially effective in larger sales teams. For example, companies like Coca-Cola and Apple often pay agents a higher commission if they close more deals than their quota. This can motivate agents to sell more, and it can encourage them to work harder to move up the ranks. Another great option is a gross margin commission structure, where a percentage of the company’s profits are paid to sales agents.
A tiered commission structure pays salespeople a specific commission percentage on every deal, and increases as the rep meets a revenue target. It encourages salespeople to close more deals and increase their commissions, and it can also be a great incentive for them to work collaboratively. Another benefit of a tiered structure is that it takes into account expenses. It also limits the number of discounts salespeople can get, which can increase their commission rates.
Pitfalls of commission-only compensation plan
A commission-only compensation plan can seem like a great idea, but this strategy is not without its risks. It can lead to high turnover and staff burnout, and it can cause reps to focus on closing deals instead of nurturing customers. It can also damage a brand and make salespeople less productive.
A commission-only compensation plan increases the risk of a hostile work environment. In addition, it decreases the likelihood of teamwork. Reps who are paid 100% commission may compete with each other for leads and may not be motivated to work together effectively.
Bonus commissions are another common incentive plan. These bonuses are not included in the regular compensation of employees and are usually based on pre-established earning quotas. A salesperson could earn up to $500 in bonus if he or she sells $10,000 worth of products. However, this plan will only work if the salespeople in the agency have a team-based sales culture. This type of incentive plan is designed to remove individual pressures and focus on building a strong team.
Cost of commission-only compensation plan
The best sales compensation plans incorporate historical sales performance, expected win rates, and number of sales calls and meetings to reach the quota. They also match the company’s goals. For example, a company may want to encourage sales of new products by offering higher commission rates for deals that bring in new business. At the same time, it may be interested in extending its reach within an existing company by incentivizing sales that result in repeat business.
Service-based salespeople work in a wide variety of industries and positions. These positions include insurance, subscription programming, and telecommunications.
Benefits of base salary + commission structure
For a salesperson, a base salary plus commission structure provides the most stability and incentive for sales performance. In the sales industry, straight commission jobs tend to be competitive, have higher turnover rates, and lack the stability that an individual contributor needs. A base salary plus commission structure can be an excellent compromise between stability and incentives for sales performance. It is important that the amount of stability is high enough to encourage the salesperson to keep up the pace and increase their performance.
A base salary plus commission structure is difficult to administer compared to a basic pay structure, since payroll staff must take into account both aspects of compensation. This can confuse salesmen, who become confused about how their compensation is determined. Additionally, companies sometimes offer multiple types of commission, including different percentages for different product or service categories.