Understanding a sales commission structure is extremely important for an individual who works in a sales related industry such as retail. So what is a sales commission, and what are the different types of structures in Australia? This Business Kitz post will inform you of all you need to know regarding sales commission structures.
What is a sales commission?
A sales commission is a percentage of the money that an individual will receive when a customer purchases a product. Sales commission is generally paid upon agreement between employer and employee, when the employee has played a large role or has put in a lot of ground work in selling the item.
A sales person usually sells big ticket items such as cars, houses and boats, and therefore, individuals working in the general retail industry will normally not receive a sales commission unless it is specified by their employer or in their employment agreement. A real estate agent is an example of a sales person, as they will usually receive 2-3% of the total sales price of the property in which they sell, as commission.
What are the different structures of sales commission in Australia?
There are many variations of structures in which an employer will pay sales commission in Australia. The most popular forms of commission include:
A commission only model (also known as a straight commission model) enables a sales person to make money via a sale only, as part of their commission (that is, sales people do not earn a base salary). Larger commissions are generally needed to be offered by the business to entice sales people for this structure.
Base salary plus commission
The base salary plus commission structure is extremely common in Australia. This commission generally involves an employee’s base salary, plus a commission for the amount (or price) of items sold.
Revenue commission is generally calculated as a percentage of the sales price of an item. This gives a sales person an opportunity to make a large amount of money, based on the effort they put in to achieving the sale.
Tiered commission structures motivate sales people to move up tiers, based on the amount of revenue they make for the business. This model generally works for companies selling expensive property, where once the sales person has sold an item over a certain amount eg. $50 000, their commission percentage may raise from 5% to 7%.
How do I choose a sales commission structure?
Understanding the differences in sales commission structures is important for motivating your workers to achieve organisational goals and profits. Sales commission models will boost productivity and performance and decrease turnover, so it is important you understand your organisational goals. Once you have determined these goals, you can choose or combine structures based on what works best for your business.
Tools such as benchmarking against other industry competitors offer benefits, to ensure employees remain motivated to pursue sales for your business. It is important to understand the financial needs of your business, to ensure the business can afford to offer commissions based on the structure you choose.
If you require legal advice or are unsure of what commission structure may work for your business, our sister company, Legal Kitz can help. Book here now for a FREE 30-minute consultation with one of their legal experts. Additionally, if you require commercial or HR documentation for your business, check our Business Kitz‘ Subscription Plan. Business Kitz’ Subscription Plan provides access to every base commercial and human resource document template for your employees and business, with all documents being created by highly skilled lawyers.