Why Commission Structure Matters
Your commission plan directly shapes your sales team's behaviour. A flat percentage drives volume. Tiered commissions reward over-achievement. Bonuses tied to specific products push strategic priorities. The structure you choose should align with your business objectives, not just industry norms.
Common Commission Models
Straight commission pays a percentage of every sale with no base salary. This works for independent agents and experienced reps who prefer high earning potential. The risk for the business is minimal because you only pay when revenue comes in.
Base plus commission combines a fixed salary with variable commission. The typical split ranges from 50/50 to 70/30 (base/commission). This provides income stability for the rep while maintaining performance motivation.
Tiered commission increases the percentage as reps hit higher targets. For example, 8% on the first $50,000, 10% on $50,000 to $100,000, and 12% above $100,000. This strongly incentivises over-achievement.
Setting the Right Percentage
Your commission rate depends on your margins, the complexity of the sale, and the length of the sales cycle. High margin products can support higher commissions. Complex enterprise sales with long cycles justify higher rates to compensate for the effort involved.
As a guideline, commission typically ranges from 5 to 15% for product sales and 10 to 25% for service sales. For pure commission arrangements through platforms like Zepys, rates tend to be higher because the agent bears more risk.
What to Include in the Plan
Document everything clearly: what counts as a qualified sale, when commission is earned, when it is paid, how returns and cancellations are handled, and what happens with house accounts. Ambiguity in commission plans creates disputes and destroys trust.
Avoid Common Mistakes
Do not cap commissions. It demotivates your best performers right when they are generating the most revenue. Do not change the plan mid-period. If adjustments are needed, implement them at the start of the next quarter with advance notice.
Avoid overly complex plans with too many variables. If your reps need a calculator to figure out their earnings, the plan is too complicated. Simplicity drives the behaviours you want because reps can clearly see the connection between their actions and their earnings.
Review Annually
Evaluate your commission plan every year against your business goals. Are reps motivated? Are you attracting good talent? Is the plan financially sustainable? Adjust as needed, but communicate changes transparently and give reps time to adapt.