With a sales commission structure, a business compensates its sales representatives based on the revenue they generate for the company rather than paying a straight salary. The more a representative sells, the higher his earning potential. Some commission work structures are based on individual performance, while others are team-based. Companies also may offer combination pay packages that include salary plus commission. The commission definition and terms vary depending on the individual business. Examples of commission-based jobs include real estate, auto sales and art commissions.
Straight Commission Work
A straight commission, or commission-only structure, means the sales representative gets no base salary or hourly rate of pay. His entire compensation is based on what he earns selling his company’s products or services. This structure benefits a company because it doesn’t have to pay its workers anything unless they generate business. It can also be beneficial to aggressive sales reps who make a lot of sales, because in many instances, there are no caps on what a commission-only salesperson can earn. On the other hand, it can be challenging for workers to have a fluctuating paycheck with no guarantee of when they’ll earn their income. The real estate and auto industries typically work on a straight commission basis.
In a salary-plus-commission work structure, sales representatives earn a steady but usually small paycheck, regardless of how much money they generate, but still earn much of their income based on the sales they make. This approach is often taken in the retail industry. For example, a clothing boutique may hire sales staff to help customers, run the cash register and straighten racks, and pay them an hourly rate for their services. If they sell a certain volume of clothing, they earn extra -- usually a percentage of total sales. When a company pays both salary and commission, the commission percentage rate is typically lower than what it would be if the employee was commission-only.