Imagine a world where your sales team isn’t just meeting targets but consistently exceeding them. What if the secret lies in the perfect blend of sales commissions and incentives?

When considering what attracts an employee to a new employer, it’s essential to understand the distinct roles that compensation and sales incentives play. Compensation, which ensures fair payment for the work performed, is often what initially draws a person to a role. In contrast, sales incentives are what keep employees motivated, engaged, and striving for continuous improvement.

This blog delves into the different roles that commission (often seen as part of a compensation package) and sales incentives (the additional, often non-financial benefits received as part of a performance-based initiative) play in the workplace.

In this blog we’ll explore key questions:

• What is sales commission?
• How does sales commission work? 
• What is a sales incentive?
• The key differences between sales commission and sales incentives
• Are commissions and sales incentives seen as a benefit or salary top-up?
• What sales incentive rewards are most effective and why?
  
  

What’s sales commission?

Sales commission is a form of compensation paid to sales employees based on the sales they generate. Typically, it is additional income on top of a base salary, designed to motivate salespeople to achieve higher sales targets. 

This method of rewarding individuals is private and usually satisfies only the basic needs of an employee.

A well-structured sales commission plan positively influences a company’s profitability by keeping the sales team motivated to sell more as they feel they have a stake in the business. However, it doesn’t always have a significant impact on reinforcing performance levels.

Some jobs are purely based on sales commission, such as taxi drivers, where there’s no base salary, only commission. However, earning income this way doesn’t always yield the anticipated outcomes. For instance, George Loewenstein’s paper “The Labor Supply of New York City Taxi Drivers” demonstrates that, contrary to rational expectations, most drivers quit work early on high-earning days, like rainy days, once they reach their average daily wage, rather than working a full shift to earn more.

While a few top performers take advantage of such opportunities, most drivers rationalise their decision with thoughts like, “I can spend more time with the kids today” or “I’ll take time to replace the old sink today.” This shows that commission-only models aren’t always beneficial for the majority of the salesforce and should be considered carefully before being introduced.

How does commission work in sales?

Commission structures can vary widely depending on the organisation and industry. Common structures include:

• Straight commission: Salespeople earn only commission with no base salary. This is one of the most unpopular types of commission structures as it doesn’t provide the sales team with any guaranteed income. This is often used by companies or startups who don’t have much capital or for high performing salespeople for whom a base salary isn’t required.
  
  
• Tiered commission: This type of sales commission plan is designed to encourage salespeople to surpass their initial sales targets, rewarding them with higher commissions when they do. 
  
  
• Revenue commission plan: This type of commission plan is regularly used by companies that are goal oriented and that sell products with fixed unit prices. This type of offer means that employees are offered a pre-determined commission rate in addition to their standard salary no matter the size of the deals closed. 
  
  
• Gross margin commission structure: This is a subtle variation of the revenue commission plan. In this structure, the sales team are entitled to an agreed commission rate but instead of receiving a percentage of the sales price, commission is calculated using a percentage of the profit after deducting the overhead cost incurred by the sale. This is a good way of ensuring salespeople are focused on sales that are profitable for the business.
  
  
• Draw against commission: In this model, companies offer the sales team a guaranteed amount of commission every month irrespective of the number of sales they make. This is done in the belief that the salesperson will, in the future, make more sales to cover the draw in sales commission. When this happens, the draw will be deducted from the pre-paid commission.

These structures are designed to incentivise salespeople to increase their sales efforts, directly linking their earnings to their performance.

What’s a sales incentive?

Sales incentives are rewards given to salespeople for achieving specific performance goals. Unlike commissions, which are typically monetary, sales incentives can be both financial and non-financial. 

Sales incentive programmes are built on the premise that people can be motivated extrinsically, now a fact proven in both academic environments and in industrial studies. Participants will improve their performance or do more to earn a desirable award.  

There are many different types of sales incentive but here are the four most common:

• Role-specific sales incentive: Different roles have different levels of responsibility and therefore should have role specific incentives attached. This type of incentive is tied directly to the role with targets being set by a manager who determines an appropriate level of achievement to be linked to the sales incentive.
  
  
• Split sales incentive: Where you have multiple salespeople working on the same sale, sometimes from different geographies or different departments, a manager will determine the amount of sales incentive to be attributed to each salesperson.
  
  
• Pre-sales incentives: In organisations where sales cycles are longer, pre-sales incentives help to keep a sales team motivated and focused on the steps to sale.
  
  
• Omnichannel sales incentives: In recognition of the fact that the world is changing, and customers today don’t just make purchases in-person, omni-channel sales incentives recognise the multiple touchpoints that support a sale.

Sales incentives work by motivating sales teams to meet or exceed their targets. They can be tailored to individual or team performance and are often used to drive specific behaviours, such as closing more deals or improving customer satisfaction, and can be introduced alongside commission-based incentives They have a dual benefit of also improving overall company performance and increased sales.

By understanding and effectively implementing both sales commissions and sales incentives, businesses can create a motivated, high-performing sales team that drives growth and success.

The key differences between sales commissions and sales incentives

	Sales incentives	Sales commissions
Definition	Rewards given for achieving specific targets or behaviours	Earnings based on a percentage of sales made
Purpose	Motivate specific actions or behaviours	Directly reward sales performance
Frequency	Often one-time or periodic	Ongoing, tied to each sale
Calculation basis	Based on achieving set goals or milestones	Percentage of sales revenue
Flexibility	Can vary widely in form and criteria	Generally consistent percentage of sales
Examples	Bonuses, trips, gifts, recognition awards	Percentage of sales revenue, tiered commission rates
Impact on salary	Often supplementary, not part of base salary	Integral part of total earnings
Focus	Broader performance metrics	Purely sales-focused

Is sales commission viewed as a benefit?

Sales commission is generally viewed as salary top-up rather than a benefit and is typically an integral part of a salesperson’s compensation package, designed to enhance their earnings based on their performance. However, consideration also needs to be given to sales professionals who don’t hit their targets as this will mean a reduced commission from sales and therefore a lower annual remuneration package. 

The amount of commission it’s possible to earn can rely on several different factors including:

• Experience level of the salesperson
• The product you’re selling
• The industry that you’re operating in
• The frequency of selling
• The buying cycles of your customers
• Macro-economical factors

Sales commissions provide a direct financial incentive to boost sales but can result in a fluctuating pay cheque and over reliance can lead to increased employee stress and potentially higher turnover rates.

Are sales incentives viewed as a benefit?

Yes, sales incentives are often viewed as benefits. They’re additional rewards that go beyond regular compensation, designed to recognise and motivate exceptional performance. These incentives can significantly enhance job satisfaction and loyalty among sales teams and help to tie performance back into company goals. The most effective sales incentives are typically non-financial as they can offer more flexibility in terms of personalisation and, as a result, are more able to tap into intrinsic motivators, such as the desire for recognition and personal growth. 

Examples of non-financial sales incentives include:

• Public or private recognition
• Time off
• Wellness gifts such as spa days and access to wellness platforms
• Learning and development opportunities to further enhance career opportunities
• Luxury merchandise gifts such as the latest tech gadgets
• Experiences such as luxury travel and dining
• Mentorship programmes

Well designed, non-financial sales incentives can boost a sense of belonging and purpose for a sales team and provide the business with a motivated and positive workforce.

Key results: