Entering the world of sales means that you will also be entering the world of commission. Having a salary that is partially or wholly linked to a commission means that your job performance is directly linked to your paycheck. That means as an employee, you have more control over your earning potential.
Depending on your contract, it may even be possible to earn an uncapped amount based on how good of a salesperson you are, and how successful you are at executing your employer's sales goals.
However, key to earning money on a commission structure is knowing and understanding the different commission structures. Finding the right commission plan for you involves knowing your strengths and weaknesses, assessing your long-term work ethic, and carefully negotiating a contract that will best suit your style and compensation needs.
The following are the most common commission structures in sales, and each structure's pros and cons.
1. Straight Salary:
With this compensation method, the amount of money that can be earned per year is determined up front. An employee's pay cannot be changed unless the contract is re-negotiated.
Pros: Your salary is in no way impacted by your sales performance, and you can rely on having a certain amount of money in the bank every month.
Cons: There is no incentive to excel, and it is easy to become complacent about your job. A great salesperson may also realize he/she could earn more with a commission-based structure.
2. Salary Plus Bonus:
This is one of the most reliable pay structures in the sales world. An employee who agrees to this method of compensation will receive a pre-determined salary each pay period. At specific interval(s), an employee will also receive an additional bonus if performance hits or exceeds earning goals.
Pros: Pay is not impacted by performance.
Cons : Earnings are somewhat capped. A talented employee who is successful in completing sales may earn less with this structure than with a commission-based structure
3. Base Plus Commission/Salary Plus Commission:
This is the most common form of compensation in sales. With this structure, a salesperson will receive a pre-determined and fixed annual base salary. Commission earned is based on the number of completed sales.
Pros: You're always guaranteed a steady stream of income from your base salary.
Cons: The commission rate will probably be lower than the commission rate tied to a salary that is straight commission.
4. Straight Commission:
Straight commission means there is no base salary. An employee earns a percentage of each sale, but this is the only way to make money.
Pros: The amount of income you earn is entirely under your control.
Cons: Pay is not tied to hours worked. If you cannot close sales, you will not earn any money.