Sales During the COVID-19 Pandemic
Sometime during early stages of the stay at home order in Virginia (to be clear: this...
Sales positions typically feature commission pay, in which income is based on performance. Commission pay appeals to true salespeople because top-performing salespeople hunger for the opportunity to earn huge incomes as their sales increase. A commission structure rewards their competitive drive within themselves. Mere salary does not feed a salesperson’s inner hunter and leaves the salesperson hungry and dissatisfied because salespeople are never satisfied with the status quo and always drive to do better.
Commission structures vary greatly depending on the industry. According to the BLS Occupational Employment Statistics (OES) survey, the 2019 sales commission averages are:
Generally, the more technical knowledge required to succeed, the higher the commission rate. Additionally, location also impacts the commission structure.
With this plan, salespeople are provided a base salary plus commission, where the general standard is 60% is fixed and 40% is variable.
Salespeople are paid directly from the sales they earn, only. There is no base pay.
Commission is earned when a target or quota is set. For example, if a salesperson has a quarterly quota of $250,000 and a $25,000 commission. If they meet 90% of the quota, they will receive 90% of the commission.
Commission is paid only when certain activities or goals are achieved. For example, for each new customer a salesperson acquires, the salesperson could receive $500.
Commission is based on how much or little they sell. Therefore, if they reach 90% of quota, they get 90% commission. However, if they exceed their quota, their commission increases.
Higher commissions get paid at higher sales milestones.
Commission is paid out based service areas or regions, rather than based on individual sales. 
Before calculating your commission structure, you must be able to answer the below questions because the answers will help you define SMART sales goals, performance measures, and payout formulas.
What are four financial pieces you need to know before creating a commission structure? The Gross margin is a percentage. It is total sales less the cost of goods divided by revenues. For example, if $100,000 is generated in sales with $40,000 spent on the cost of goods sold, the gross margin is ($100,000 - $40,000) / $100,000 = 0.60 or 60%. The commission is then calculated as a percentage of the margin.
If the cost of goods sold percentage of sales revenue is high, it can be indicative of inefficient procurement, production, and manufacturing processes.
Typically, 10 to 20 percent of revenues should be spent on sales, but a new product or service launch can boost the costs to 30 percent. However, high-growth technology businesses spend 25 to 45 percent of revenues on sales.
You need to set revenue goals that improve gross or net profit.
Now you have all the data to generate your commission structure.
You are not alone in having to create a sales commission plan on your own. There are a variety of different resources that you can use, including MPWRSource.
If by chance you still believe that commission is an ineffective way to pay salespeople, reflect on this quote by Grant Cardone, founder and CEO of Cardone Enterprises, “Everything in life is a sale and everything you want is commission.”
Sometime during early stages of the stay at home order in Virginia (to be clear: this...
Sales teams work best when they have all the data they need right at their fingertips. When they...