How to Calculate Commission for Your Sales Staff

It’s important that you pay your employees a fair wage for the work they are doing! For the average employee, it’s easy to figure out how much they are worth, according to the job that they are carrying out. But when it comes to sales, things get a bit trickier!

You don’t want to pay your sales personnel more than they’re worth, but it’s illegal to pay them less than minimum wage. So, how can you calculate the amount of commission that they’re owed?

See also: How to Pay Employees When You Can’t Make Payroll

1. Evaluate the Salary

Every state has a minimum wage that you MUST pay your employees. If your employees earn commissions, they are counted toward their "base salary", provided that their commissions are regular.

Look at how much your employees are earning as their base salary. If they are earning minimum wage, you need to offer them a commission that makes it worth their time. If they are earning above minimum wage, you may be able to get away with a lower commission. If they’re not earning a base salary at all, you need to offer a higher commission to ensure that they’re earning no less than minimum wage every month.

2. Consider the Value of Items Sold

Not all employers pay their employees a base salary as well as commissions, especially if the sales personnel are selling big-ticket items. For example, if you are selling machines worth hundreds of thousands of dollars, your sales staff can earn more in a single sale than they would with a base salary. But if you’re selling smaller items, the amount earned per commission is MUCH lower.

For this reason, you need to consider the value of what your employees are selling.

  • High-ticket items with a higher commission = no need for base salary
  • High-ticket items with lower commission = lower base salary
  • Low-ticket items = higher base salary

3. Try Fixed Commission

For many employers, it’s easy to give their sales staff a fixed commission on every item sold. It can either be a fixed dollar value or a fixed percentage.

With a fixed value commission per sale, your employees will have more bargaining power. They earn the same amount of money per sale, so they’re less afraid of offering discounts. It will come out of your pocket, not theirs.

With a fixed percentage commission, they’re more motivated to make a higher sale. The more the customer pays for the product, the more they earn.

4. Consider Sliding Scale Commissions

This means increasing the amount of commission earned according to the number of sales made.

For example, employees earn 5 percent on the first $10,000 of sales, but that increases to 10 percent after that first $10,000.

This gives the employee an incentive to sell a lot more! It’s harder to evaluate, but it could be what you need to give sales a boost.

5. Don't Forget the Bonuses

Pay bonuses are always a good incentive! You can offer a bonus according to the volume of products sold, number of sales made, or income earned for the company. The beauty of pay bonuses is that you can offer them according to what you think you can afford—they’re extras!

See Also: 6 Ways to Avoid Employee Lawsuits

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If you’ve got a sales staff, the information above will help you calculate their commissions…

How do you pay your sales staff commission? Let us know in the comments section below.