How to Set Up Commission-Based Compensation for Outside Sales

Sep 2, 2019

There are few motivators in life as strong as money. How, and when, you pay your sales team can either motivate them to smash their quotas and give their best performance or cause them to look for a way out and leave you for your competitors.

The main goal of commissioned-based compensation is to encourage positive behavior in your sales reps and penalize the practices that hurt your business. Your compensation structure, then, should align with your company goals and help drive your team to success.

You have a lot of options when it comes to setting up the compensation structure for your outside sales team. Here’s how to get your commission-based compensation started and tips to make it as effective as possible for you and your team.

Keep the Big Picture in Mind

What behavior you specifically would like to encourage and penalize depends on your unique company and goals. Consider what your goals are, where your business is, and where you would like it to be before deciding on your compensation structure. Would you like more revenue, return customers, shorter sales cycle, or higher profit margin, for example?

You need to know what you would like to accomplish first, and then you can make your commission accordingly. Choose one or two main objectives. If you try to emphasize them all, you won’t be able to focus on any particular one and run a serious risk of not reaching any goal. Your sales reps may get confused by the lack of focus and won’t go in the direction you’d like.

Once you have a few objectives in mind, you can start to decide which pay commission is right for you.

Compensation Plans to Choose from

There are a wide variety of ways to organize your commission so you can pick the one that works best for your sales team and organization. Some examples include:


You can choose to forgo a base salary and pay your reps entirely based on what they sell. It can provide a strong motivation for your team, and you don’t have to pay them if they aren’t performing. You don’t have to risk paying an under performer, and they likely won’t stay too long.

However, this shifts all the risk onto the sales rep. A salesperson that is willing to take that risk creates a few difficulties for you and your company. Most high-performing reps wouldn’t take the risk, so likely you’ll be hiring someone who can’t get work somewhere more secure. That’s not the kind of person that will make sells or represent you well.

Commission-only also creates a cut-throat environment and damaging company culture. If you only pay your salesperson for sales, that’s all they’re going to do. They will be motivated to ignore emails, skip company meetings, and fail to fill out paperwork because it distracts from what they’re paid to do. They’re also more likely to use deceptive sales techniques to close the sale.

Base Salary Plus Bonus

This pay structure gives your sales reps a base pay and then a bonus for hitting their targets or quotas. This method encourages your employees to hit their goals and gives you the advantage of predicting how much you will pay them.

However, your sales reps won’t be motivated to sell beyond their quota, and you might end up losing out on potential business because of it.

Base Salary Plus Commission

This is the commission structure that most businesses have. Your sales reps have a base salary and earn a commission for every sale that they close. This provides them with a level of comfort and security even if they happen to have a slow month, and it motivates them to sell as much as possible to get more commission.

Plus, with a base salary, your salespeople are obligated to perform non-selling tasks that will benefit your company, such as training, company meetings, etc. Your salespeople will be a higher caliber because of the extra time they can invest in learning more about your product, company, and take the time needed to do things for your company outside of sales.

What Commission Rates Should You Pay

How much you pay your employees depends on a wide variety of factors. Some variables include:

·     How much experience is required

·     How in-depth the sale process

·     What industry you are in

·     How complex the selling process is

·     How much help you’re providing them (i.e., are you giving them leads, providing them with technology, etc.)

It also depends on the commission structure you choose. For commission only, for example, the norm is 20-40% of the gross (total sale minus expenses). In base plus commission, the standard ratio is 60:40 (60% base salary and 40% commission). Another rule of thumb is that your top salesperson should be able to double their base salary through commission. So, if you offer $100,000 base pay, they should earn $100,000 in commission.

Motivate Your Sales Team with Commission

The right commission for your company means a happier and productive sales team. When you make it clear to them that you are willing to share the wealth, literally, they’re more likely to go out of their way to make you and your business successful.

Find out what your goals are, pick the right commission for your company, give your sales rep competitive pay, and watch your company grow.

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