How to Design Effective Sales Commission Plans

Effective sales commission plans

Still others may not start to pay a commission until a specific dollar amount of sales or gross profit dollars is earned and then gross profit percentage targets determine the commission amount to be paid. This may be due to the markets the person sells in or could be because the salary of the sales person in that location is higher. We do see plans where there is no base salary and higher commissions are paid on gross profit targets or a percentage of the total sale, sales with RMR paying more than those without, etc.

When an organization has different commission plans, it is easier to help motivate and reward a variety of sales people for the business they bring in. Sales is not easy an easy career–if it were, everyone would do it. Pressure is tremendous and competition is everywhere. Designing plans that target specific sales types, markets and business you want is great. Being able to reward different sales people according to their experience and ability is even greater. Establishing a base plan that can be used for a variety of sales people and being able to customize it as needed is a great motivator. A sliding gross profit scale is one way to do this. Gross profit margin targets are established and at predetermined GP levels a corresponding payout is established. An example might be something like this:


Gross Profit % Commission %

22-24 2

25-28 3

39-30 4

31 5

32 6

33 7

34 8

35 9


You can even create plans that include sliding scales based on the type of sale: new business; existing; recurring revenue; or target markets such as corporate, hospitals, finance, government or others.

There are many variations and those that work best and attract the best sales people marry the goals of the company to reward the team for reaching those goals through good sales. As a dear friend often reminds me: ‘Sales are life blood—cash flow is King—the rest is doing a great job for your customers!’



Tracy Larson is the president of WeSuite LLC in White Plains, N.Y.;