What type of commission structures do you have in place for your sales force?

In my company we have hourly or commission, whichever comes first. Our bonus structure is really set up for volume. When we sell a product, we get paid a percentage of the profit and we also have special bonuses called fast start and sometimes even a fast close. A fast start is meant to get us motivated at the beginning of the month. It usually consists of selling x amount of units within the first week and x amount of units within the second week. We also have bonuses for units which are spread out between 3 and 5 units apart so it helps to keep us motivated.

In my finance department, they are also commision but, they get a salary which is not very much. They are paid a percentage of their profits based off of their average. Meaning, if their average is above x amount of dollars, they get a certain percentage. If it goes up or down, their percentage goes up and down. They also get bonuses for top sales and highest average per unit.

I hope that this has helped out.

Hi --

I have managed and designed a number of different structures, depending on the business model.

My current firm offers our sales team straight salary, with a substantial bonus tied directly to profitablity -- we are wholesale distributor, selling primarily into catalog and internet channels. Most of the decisions in this market are based on price and an ability to meet demand during season, so there is little a rep can do to impact sales on the short to mid term.

In some of the prior businesses I've been in, we have set up a draw against commission, with quarterly reviews, as well as straight commission, and a couple of hybrids.

It really depends on your business model, your market, and your team.

Most usually, in my experience, it's been a basic wage, plus bonuses when contracts or work orders are signed. The downside to this is that the sales fols can do or say anything to get the contract signed, and they have no tie to the successful completion or implementation of the project. (This often leads to making promises that cannot be technically delivered, or commiting prices below what it would take to deliver.

I think a better method is to tie some large portion (say half?) of the bonus should be paid when the customer signs, and the rest gets paid when the customer PAYS! The bonus may need to be a bit bigger since the payout is not stretched over time, but there is also incentive for the sales person to sign the customer up for a project that can be successfully implemented at a profit to the company.

I rebuilt our commission structure from scratch three years ago and it's been remarkably successful. A lot of things depend on the goals of your organization, including available historical data. Our objective is 10%-15% growth by market (or territory) per year. We have the luxury of unlimited historical sales data. The thinking is that through market diversification, up markets will more than offset down markets to achieve modest and stable growth. First, I established a base minimum acceptable standard (quota). Quota is determined by 90% of a two-year running average by market. In our case, failure to reach quota results in a commission payment of 0.5% of the net sales revenue monthly. The next phase is a bonus structure. The bonus metric is calculated as 20% above quota (Quota x 1.2). Sales between quota and bonus pay a flat 1%. Sales above bonus pay 2%. Here's the real incentive kicker that has done wonders around here. For each consecutive month above bonus, the salesperson is paid an additional full percent, up to 4% of sales. The salesperson can hold at 4% as long as they continue to hit goal. Once they miss, the system resets to 1%.

This program increased commissions by 40% in the first year, but increased sales by 25%. Obviously, you'll have to play with the numbers based on your margins to find the right mix, but this program is easy to understand, pays off quickly (a crucial aspect to any comp plan), and is simple to administrate.

This isn't a cut-and-dry sort of situation with a basic answer. It's going to hinge largely on the type of industry you're focused on. For example, I work in high tech, and our sales force consists of direct, channel and overlay positions, each with a significantly different pay/commission structure.

In tech, it's not uncommon for a direct sales position (Sales Rep) to have a base salary with an added commission component. This is what we have, and the mix is 45% of On Target Earnings allocated to base, with the remaining 55% of On Target Earnings allocated to commissions at plan. Then, of course, there are accelerated commission payouts for performance above plan. To contrast this, however, you can look at auto sales, which is almost entirely commissions, without the base, or you can look at consulting, which is focused less (if at all) on revenue and more on things like time utilization.

I bring all of these contrasting points up to illustrate how industry can and should drive your comp structure. To get a better handle on what is competitive in your industry, I'd recommend you look to some of the standardized surveys that exist, such as Radford. If you have the means and the access, these tools can give you significant detail around competitive pay structures, base/commission mix, acceleration structure, etc.

Links: http://www.radford.com http://www.pearlmeyer.com