[Infographic] The Many Ways To Compensate Sales Representatives

December 24, 2014 Matthew Cook

the many ways to compensate sales peopleIn 2012, the median annual salary for a sales representative was $54,230, according to the Bureau of Labor Statistics. The highest-paid 10% in the same year made about $112,650, and the lowest-paid earned about $27,340.

This wage gap is influenced by several factors. One is that different sales fields compensate their employees differently. Highly compensated professionals typically work for companies that specialize in computer system design, computer equipment manufacturing, and footwear manufacturing.

Another factor that causes the wage gap is the simple fact that there are several different ways to compensate a sales person. We’ll explore the main methods below:

  • Straight Commission: Straight commission is when sales reps are compensated after each sales transaction. Sales reps who work on straight commission don’t receive a salary, just a percentage of their sales, so their pay is dependent entirely on the sales they make. Commission can make sales reps feel like they’re sharing in the employer’s success. It also rewards sales reps for their work. The advantage to the employer is that they won’t lose money on employees who slack off, since commission sales reps are only paid what they earn.
  • Variable and Residual Commission: A variable commission structure is where payment is dependent on the gross sale of a product. What the salesperson makes varies based on the money generated by the sale.
  • Variable Commission Based On Sales Goals: Some companies compensate their employees by setting sales targets. They increase the commision that their salespeople make if they continue to hit those goals.
  • Base Salary Plus Commission: While some sales reps only make money when they’re selling well, sales reps who work on base salary plus commission are paid a predetermined salary to cover basic living expenses and manage cash flow. Commission is paid on top of that. In many cases, sales reps in this payment structure get 30% of their income from base salary and 70% from commission.

Different structures will work better or worse, depending on the company and the individual sales rep. The right payment structure will compensate employees fairly for their quality of work and allow the company to profit.

[Infographic] The Many Ways To Compensate Sales Representatives

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