Commission-only reps are considered independent contractors, so they’re not technically in-house employees. This can save money on hiring, taxes, benefits, and other expenses since companies only pay out when the rep is bringing in revenue. However, greater income potential doesn’t always mean better salespeople or a higher income.
What kind of revenue do you get from commissions?
The company or person earning and receiving commissions (such as a percentage of sales) will have commissions revenue. The company or party that pays the commissions will have commissions expense.
How does an employer approach paying sales commission?
The draw amount is subtracted from future commissions. This is a tool frequently used when a sales employee starts a new job in an organization. It gives the salesperson an income before they have made sales eligible for sales commissions. It presumes that an employee will take some time to get up to speed on the products, make contacts, and more.
What is a commission and what is not a commission?
Commissions are wage payments that an employee is entitled to receive by virtue of making sales. A discretionary payment that an employer can choose to pay or withhold, such as a performance bonus, is not a commission even if it is computed as a percentage of sales or profits. 3
What’s the best way to calculate a commission?
If you are looking for a sliding scale calculation, see my article on calculating commission with a tiered rate structure using SUMPRODUCT. A common approach to calculating commissions is using IF statements. With a rate table like this you would have to write multiple IF statements.
What are the different types of sales commissions?
One of the most common sales commission structures is a base rate plus commission on every sale. Some companies provide an hourly rate as the base, while others stick to a straight salary.
Why are sales commissions important in a compensation plan?
Sales commissions are an important part of developing a compensation plan for your sales team. They reward salespeople directly for their efforts by linking their compensation to their performance.
