Some Thoughts on Sales Commission Strategy

Sales commissions are a tricky thing. Once you put them in place, it is difficult to change them without the sales team being demoralized that their compensation is going to go down (even if it isn’t!). The goal, generally, is to minimize base salary and maximize performance based compensation. Here are some thoughts on strategy:

  • Align company interests with the commission (e.g. have commission percentages based on the profitability of the item being sold such that things like license revenue have a higher percentage commission than services revenue)
  • Significantly reduce compensation if quota isn’t hit (e.g. cut the standard commission in half if quota isn’t reached for the designated time period)
  • Don’t limit the up-side (e.g. don’t put a cap on the maximum amount a sales rep or account manager can make)

Sales, and management of a sales team, is one of the most difficult, and rewording, aspects of a business. Good luck!

3 thoughts on “Some Thoughts on Sales Commission Strategy

  1. Have you seen an example of commissions working against delivery of the product and reducing profits on a deal or even causing a loss — I.e. overselling to reap the incentives? If so, how do you combat this in the presence of closing-incentives?

    1. Yes, I’ve seen this several times. To counteract that we tie the pay out of the commission partially based on the life of the customer such that full commission won’t be paid if the customer leaves after a month.

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