Scribd
Upload
46 views20 pages

Commission by Samuel Mabugu: Presentation

Commission is a payment made to employees based on the value of sales achieved. It can form all or part of a pay package and is a form of incentive pay. There are several types of commission structures including straight commission (based solely on a percentage of sales), salary plus commission (includes a base salary and commission), and residual commission (employee continues to receive commission as long as the sale generates ongoing revenue). Different commission structures can be used to incentivize different types of sales or performance.

Uploaded by

Buddha 2.O
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
46 views20 pages

Commission by Samuel Mabugu: Presentation

Commission is a payment made to employees based on the value of sales achieved. It can form all or part of a pay package and is a form of incentive pay. There are several types of commission structures including straight commission (based solely on a percentage of sales), salary plus commission (includes a base salary and commission), and residual commission (employee continues to receive commission as long as the sale generates ongoing revenue). Different commission structures can be used to incentivize different types of sales or performance.

Uploaded by

Buddha 2.O
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 20

Commission By Samuel mabugu

PRESENTATION
Definitions of commission

 COMMISSION -1. order or authorize the


production of (something).
 2.an instruction, command, or role given to a
person or group.
Definition according to Peter Stimpson
and Alastair Farquaharson


COMMISSION –A PAYMENT TO
.

SALES PERSON FOR EACH


SALE MADE .
Commission is a payment made to employees based on the value of
sales achieved. It can form all or (more often) part of a pay package.
Commission is, therefore, a form of "incentive pay" (see also profit-
related pay, bonuses).
Commission, like piece-rates, is a reward for the quantity or value of
work achieved. In most cases, the employee is paid a flat percentage of
the value of the good or service that is sold.
The rate of commission depends on the selling price and
the amount of effort required in making the sale.
For example, commission rates could range from 5%
where the product sells easily (e.g. household goods sold
door-to-door) to 30% where the effort is substantial.
The main advantage of commission from an employee's
point-of-view is that it enables high performing sales
people to earn huge amounts.
The main advantage to the employer is that the payroll
cost is related to the value of business achieved rather
than just the amount produced. After all, businesses
exist to sell goods and services for profit – not just to
make things.
However, there are several drawbacks with using
commission payments:
Sales people may cut corners to make sales (e.g. not
explain the product or service in enough detail to
 potential customers) – i.e. customers are misled &
missold
 High commission earnings enjoyed by some of the
sales team may be resented elsewhere in the
business – particularly if the sales actually depend
on a team effort
 It is difficult to change what proves to be an over-
generous commission structure without upsetting
and demoralising the sales team
commission as an incentive payment method offer a basic pay
plus a moderate commission level. In this way, if sales and
profits justify the change, the commission rate can always be
increased slightly.
https://www.tutor2u.net/business/reference/com
mission#:~:text=Commission%20is%20a%20p
ayment%20made,%2Drelated%20pay%2C%2
0bonuses).&text=After%20all%2C%20busines
ses%20exist%20to,not%20just%20to%20make
%20things
1. Bonus Commission
Bonus commissions are an opportunity to reward employees for their success.
These bonuses are in addition to an employee’s established pay and are usually
based on pre-established earning quotas. This type of sales commission structure
is common within startup organizations that want to reward high achievers and
keep up office morale.
Remember that any bonuses paid to an employee, even as a cash gift, are
considered taxable and should be included within their total yearly earnings.

If the bonus commission was 5% of a huge $10,000 sale, the employee would
receive a $500 bonus, minus all applicable taxes, in addition to their regular pay.
(10,000 x 0.05 = 500)
2.Straight commission can also be referred to as commission-only because it is the
only pay an employee receives. There is no base salary or hourly wage included in
this pay structure.
All compensation is based on an agreed-upon percentage of sales. Companies can
benefit from a straight commission setup because they do not have to pay for
anything unless an employee is generating business.Bonus commissions can be
awarded to individuals, teams or even company-wide for extraordinary
performances. This type of commission is most common within the real estate and
auto industries.
If an employee brings in $50,000 of business in a
month and their commission rate is 8%, they would
be paid $4000, minus all applicable taxes.
(50,000 x 0.08 = 4000)
3. Salary + Commission
A salary with commission is the most common type of commission structure. In this
case, an employee has a fixed salary base, but they also receive commissions for
their sales or performance.This structure has the luxury of stability while also
encouraging employee performance. The fixed salary is steady, but generally
smaller because much of someone’s income is still determined by sales. This type of
commission is most common within retail industries.
If an employee brings in $50,000 of business in a month and their commission rate is 4%, they would be paid $2000,
plus their salary, minus all applicable taxes.
(50,000 x 0.04 = 2000)
4. Variable Commission
Variable commission is as it sounds, varying based on the type of sale.
With this setup, any simple or easy to acquire sales can be rewarded differently
than tough sales to encourage growth in specific markets. It can also be used to
reward the sale of long-term contracts or highly desirable customers.
This type of commission is most common for businesses trying to break into new
markets because the setup encourages and rewards specific types of sales.
If an employee brings in $40,000 of regular business
at a commission rate of 5% as well as $10,000 of
highly desirable business at a commission rate of
15%, they would be paid $3500, minus all applicable
taxes.
(40,000 x 0.05 = 2000 + 10,000 x 0.15 = 1500)
(2000 + 1500 = 3500)
5. Residual Commission
A residual commission structure is for ongoing accounts. With this setup, an
employee will continue to receive commission on a sale as long as it continues to
generate revenue.
Residual commission has both pros and cons for sales employees.
Employees can benefit from this type of commission because, after a time, they will
begin to build a steady commission income from their residual sales. On the flipside,
losing a long-term sale can suddenly reduce an employee’s earnings by a significant
amount. This type of commission is most common for agencies, consulting firms and
any businesses that prioritize long-term accounts.
 
If an employee brings in $50,000 of
monthly business and their commission
rate is a residual 5%, they would be paid
$1000, minus all applicable taxes. This
$1000 pay would continue every month
so long as the sale continued to bring in
$50,000 of revenue each month.
(50,000 x 0.05 = 1000)
6. Draw Against Commission

With a draw against system, employees are advanced a predetermined draw that’s
deducted from their commission on each following pay.
After the draw amount is paid out of the commissions on the following pay, the
employee is left with the remainder. If an employee is unable to make the draw
amount in commissions, they will owe that amount back to the company.
Someone can take additional pay from the next set of commissions, but if an
employee has a few bad sale cycles in a row, they can be left with significant debt.
This type of commission is most common for businesses with lengthy or seasonal
sales cycles.
If an employee brings in $50,000 of business in
a month and their commission rate is 8%, they
would be paid $4000. The draw amount that
they received in advance (Ex. $3000) would be
subtracted from the gross commission total,
leaving an extra $1000, minus all applicable
taxes.
(50,000 x 0.08 = 4000)
(4000 - 3000[draw] = 1000)
The different types of commission setups can be combined to create the perfect
structure for your business. A salary + commission structure can be specialized by
also including a graduated or variable system.
It’s all about finding what works best for your business.
 

https://blog.wagepoint.com/all-content/how-commission-
works-and-how-to-choose-the-right-payroll-structure
Thank you for listening

You might also like