When it comes to tips for recruiting sales reps, knowing how to pay commission is one of the most vital. Permanent and freelance sales reps get into their line of work because they want a healthy paycheck—preferably one bolstered with commissions. So, when you hire your first sales rep, you must think about the potential commission structure in your overall compensation package.
Here, we look at a sales rep’s commission and how to pay it. We will take things back to basics and go over the precise definitions for both sales reps and commission. By grasping these essential points first, you can feel confident that any decisions you make regarding these matters are as informed as possible.
What Is a Sales Rep?
A sales rep is an individual tasked with selling a company’s products or services and maximizing those sales. By having a sales rep as part of a company’s staff (be they permanent or freelance), the company is ensuring they have a dedicated person targeting sales to improve profitability.
A sales rep can try to find new potential customers to increase sales, and they will often nurture relationships with existing clients to make and improve those sales quotas. Or, if customers approach salespeople directly, reps can use their sales understanding to increase the value of the sale.
What Is Commission?
A commission is an extra compensation for selling an item or service to a client or customer. The commission is often a percentage of the sales total. However, it can depend on achieving a certain amount of sales, hitting a target, or any other type of goal a company sets to receive a commission payment.
What to Pay a Sales Rep in Commission
Increasing your sales is a way to improve your profitability and help your business grow, which is what entrepreneurship is ultimately all about. The amount of commission to pay a sales rep is up to you and what you believe will be the best motivator. Good motivation, and a healthy commission will result in a sales rep that is more inclined to work harder to increase their sales totals.
To determine the proper commission structure, you should research the market to see what your competitors are doing. While you do not have to go above or match that rate, it is vital to know what sales reps in your industry are used to receiving. If you decide to go lower than the market average, you need to be sure that you can still attract the top talent to apply for your sales rep roles.
You can build commission structures by considering several different factors. For example, you can pay a sales rep their commission if they achieve a certain level of sales each month; or you could pay them more for a higher level of achievement.
If your profit margins are too tight, you leave yourself with very little room for growth. You need to get the balance right of attracting top talent so you can hire a highly competent individual and avoid squeezing your profit margins. Again, doing some market research will help you decide the best commission structure for your business.
How to Pay Commission to a Sales Rep
How you pay commission to your sales rep is up to you. Some companies choose to do so monthly alongside a salary paycheck, while others payout commission less frequently.
By incentivizing staff members to stay until their commission payment date, companies can help lower staff turnover. High staff turnover is costly, as you have to dedicate a significant amount of time to hiring new staff.
Some sales reps, perhaps most notably in the recruitment industry, only get their commission when someone they have found to fill a role has stayed at that firm for a certain period.
In this recruitment example, new hires need to remain in a position long enough for a client to be happy with their recruitment agency, since only if they are delighted will that client use the agency’s services again.
That’s an example of how companies structure their commission to best balance out motivating their staff with the possibility of better pay and what results in an efficient way of working.
Making the Most of Commission
Many firms offer ‘uncapped’ commissions to entice people into their sales roles. If individuals are great at what they do, their sales will always be higher. If sales are always high for a company, the chances of building a successful business are very much assured. So use commission payouts wisely to attract the best of the best, and watch your profits grow!