Set Efficient and Clear Sales Commission Policies
An unclear sales commission policy is literally expensive, because you either pay for the lack of clarity in hard dollars or, if you choose not to reconcile the difference expected by your employee, goodwill. Making structural decisions up front and documenting them helps keep everyone on the same page.
Ask yourself the following questions when coming up with your commission structure:
Do you pay only commissions, or do salespeople receive a base rate with commission on top of it?
A combination of base and commission works effectively in most sales organizations. Salaried salespeople miss out on the potential high returns of commissions, although commission-only salespeople are typically very stressed out. You want your employees hustling for status and a nice car, not food and a roof over their kids’ heads.
When are commission payments due to the salespeople? How often are they paid? Particular clarity is needed for sales that close near payment due dates. For example, if commissions pay out the 15th of every month, do sales that close on the 14th pay the next day or the next pay period?
What happens to existing salespeople when you change commission rates? Are they grandfathered in on their old rates, or do they switch to the new ones?
Is the commission based on net or gross sales?
What event triggers a commission? For example: a signed contract or a cleared check?
Does the commission percentage change based on certain deal factors, like the amount of the sale? For example, do sales over a certain amount earn a higher commission percentage?
Is the exact commission percentage dependent upon the payment method? For example, do check payments lead to a higher percentage than credit card payments? (Remember that check payments often require more work from your accounting staff, so there’s a hidden cost there.)
Maintain an open door policy to answer questions and get feedback from your sales team about commissions. Don’t present the current policy as set in stone.