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Types of Sales Commissions Plans (Basic) Minimize

SALES RECRUITMENT, SALES RECRUITERS & SALES RECRUITMENT AGENCY

Types of Sales Commissions Plans

There are two main categories of commissions; those that use a target rate and those that use target pay.

Target Rate

Target rate is where a fixed percentage of the sale is paid to the salesperson. Target rate is best applied where the sales person is also the source of the income such as a real estate agent or a mortgage broker. 

Target Pay

Target pay is where a commission is calculated and paid to the salesperson. The level of remuneration is typically based on preset target levels, thresholds and other influencing levers.

Target pay is used where the income is generated from the company's product and / or services such as a BDM for a Systems Integrator. Approximately 95% of all professional B2B sales roles fall into target pay.

Example:

Let's take the case of a typical BDM, Peter is responsible for selling a relatively transactional product - Protocol Analysers. 
 
Peter has an On Target Earning or OTE of $100,000. This is comprised of $60,000 in fixed remuneration or base and an annual on-target commission of $40,000. This common 60 /40 split between fixed and variable remuneration is in line with the company's standard policy for this type of sales role.

Peter has an annual sales target of $2 Mil, with commission paid quarterly.

At the end of each quarter, Peter's commission will be calculated by measuring his actual sales against his quarterly target ($500K) and applying this to his quarterly on-target commission ($10,000).

For example, in the case below, assuming Peter sells $450,000 of product for the quarter (90% of his target figure), Peter will receive 90% of his target commission ($9,000). 
 
Commission Calculations               

 Annual sales target 

 $2,000,000 Annual target commission

 $40,000 

 Quarterly sales target

 $500,000 Quarterly target commission 

 $10,000

 Actual sales (for Quarter) 

 $450,000 

-

 % of Target Achieved 

 90%

-

 

 .

-

 Commission Payable

 $9,000

-

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