It’s important to pay your staff fairly, whether it’s a set salary or commission-based. However, how do you know if commission is right for you and your business? Paying your staff on a commission has many benefits, but it can have some drawbacks too, and choosing the right plan is crucial. It should be unique to your business, suiting your needs and goals.
Commission can be a great motivator for employees. Serving as an incentive, it encourages employees to make more sales and increase revenue by rewarding them, also giving them some degree of control of their earnings potential. However, this may only be a short-term solution, and while commission may lead to increased effort from employees to make sales, a regular salary may lead to more loyal employees.
A sales team shouldn’t be paid on commission alone. Determine what type of compensation makes the most sense for your business, either it be a percentage, a standard commission rate, team-based commission, share of profits, incentives for meeting sales targets, incentives for attracting new business, or wholesale or net sales. When it comes to percentages models, among the most popular are a 30 percent salary/70 percent commission split or an even 50/50 split. However, remember that your employees will need to cover their expenses regardless of sales performance. No matter which method you choose, be sure it’s simple for your employees to understand.
The nature of commission can help attract talent, particularly those who work well in a commission system and are risk-takes. However, the same factors that make commission-based pay attractive to some potential employees can make it a turn-off to others who prefer the stability of a flat salary. You do not want to miss out on potentially valuable employees.
This article was written by Janelle Sheetz for CBS Small Business Pulse