commission
Content
WHAT IS THE COMMISSION ?
1. Commission is a fee which a salesperson would receive upon completion of a sale. It is a motivational system of payment designed to encourage sales staff to sell more. 2. The amount of remuneration paid to a person who gives his service is called as.
BROKERAGE OR COMMISSION?
Commission is a payment made to employees based on the value of sales achieved. It can form all or part of a pay package. Commission is, therefore, a form of “incentive pay” (see also performancerelated pay, bonuses). Commission, like piece-rates, is a reward for the quantity or value of work achieved. In most cases, the employee is paid a flat percentage of the value of the good or service that is sold. The rate of commission depends on the selling price and the amount of effort required in making the sale.For example, commission rates could range from 5% where the product sells easily (e.g. household goods sold door-to-door) to 30% where the effort is substantial.
THE ADVANTAGES OF PAYING COMMISSION vs. SALARY
When you are deciding how to pay your employees, you should consider the benefits of paying by commission versus the benefits of salaried pay. There are advantages to both options for the employee as well as the employer. Consider all the possible advantages when you develop a payment scheme for your employees Commission: Employer Benefits Employers benefit from paying a commission to their employees because it means that they only pay the employee if there is a sale. This eliminates the burden of paying employees for work that does not result in sales. It also improves the cash flows of the business because it means that employees are only paid when money is coming in from a sale. Salary: Employer Benefits Paying employees by salary can be beneficial in a business where you want to offer strong customer support without pushing sales on your customers. By giving employees a salary, it removes the motivation to simply sell the most expensive products to a customer without truly considering her needs. Having salaried employees can, therefore, lead to better customer satisfaction. Commission: Employee Benefits Pay based on commission is beneficial to employees because they receive pay based on their skills and the work that they do. For employees who work hard and who are skilled in sales, they will be rewarded for their efforts. This can motivate employees to go above the minimum requirements, knowing that their efforts will result in higher pay. Salary: Employee Benefits Salaried pay offers advantages to the employee because it provides regular, dependable income. An employee with a salary knows exactly how much each paycheck will be worth. This means that the employee can budget around her salary without worrying that her income will fall short at any given
time.
SALARY OR SALARY+COMMISSION
One of the most common questions I get lately is from people who have been out of work or lost a job due to a layoff and are now faced with the decision to take a straight-commission job due to a steady decrease in the number of available salary + commission jobs. It's not an easy answer simply because each has its own advantages and disadvantages. Personally, I think the straight commission world offers greater opportunity and higher overall potential, but everyone's situation is different and what is right for me may not be right for the next person. So, with that in mind, let's take a look at each.
SALARY OR SALARY + COMMISSION
SALARY ADVANTAGES 1. Economic security. In a job with a base salary, you know you'll always have a paycheck and paying your bills will never be an issue. 2. Stability. Along with the steady paycheck, most jobs offering a base salary generally expect you to stick around for the long-term. In fact, longevity of a potential salesperson is usually highly scrutinized during the job interview and selection process. They expect you to stay with them for at least a few years, and they assume that you view them as a long-term, if not permanent, employer. 3. Training. Part of the stability and structure typically offered with a salaried position is a training program. Nearly all salaried sales positions have a formal new-hire training process, and most provide valuable ongoing training. This training will not only help you improve in your current job, but will be considered highly valuable by any potential employers in the future. 4. Expenses. Most (but not all) salaried positions provide basic expense reimbursement, usually mileage and cell phone at a minimum, with some providing more. 5. Benefits. With few exceptions, a salaried base + commission job will offer health insurance, possibly along with other fringe benefits. SALARY DISADVANTAGES 1. Reduced commissions. Nothing in this world comes without a price and the price for the security of a base salary is a lower commission rate. In most companies, the difference can be staggering. My first straight-commission job paid 17% compared to the 2% I was previously earning in the base + commission position. The reason for this is obvious. Employers decide upon how much money you
should make at 100% of quota, subtract your base salary and the cost of benefits and payroll taxes, and whatever is leftover becomes your total targeted commission. However, if your base salary is rather large, a low commission rate may not be an issue after all. 2. Less freedom. Another price for a steady base salary and the structure and stability of that type of position is that you are obviously an employee and will need to meet certain requirements. At a minimum, most salaried salespeople must show up for meetings, come into the office at set times or otherwise report in, complete certain reports and forecasts at set intervals, participate in company activities, and so on. 3. Time management. All the activities that a salaried salesperson must complete seriously cut into productive selling time. All that time you spend commuting to and from the office, filling out forecasts and reports, attending sales meetings, going through ongoing training, filling out expense reports, etc., is time that you cannot spend selling. The end result is reduced productivity. 4. Questionable security. While a base salary guarantees that you can pay the bills while you have it, there is always the risk of being laid off, or of losing your job thanks to a couple of poor sales months. Companies are really tightening the leash these days when it comes to sales reps who are not at quota. I know of companies who used to keep non-performing salespeople for six months or longer, and today they'll drop the same people in less than 60 days. 5. Lowered competitiveness. A salesperson who is an employee of a company can only represent that company, and therefore must continually battle the competition. 6. Higher taxes. 9 times out of 10, an employee will pay higher income tax rates than a self-employed commissioned agent who has consulted with a good accountant and structured his or her operation for maximum tax advantages.
STRAIGHT COMMISSION
Now, let's take a look at the advantages and disadvantages of working as a straight-commission salesperson: COMMISSION ADVANTEGES 1. Higher overall opportunity. A straight commission opportunity almost always pays a drastically higher commission rate than the same position paying salary + commission. When I was faced with the decision to take the plunge that first time, at first I was terrified at the thought of not having a steady paycheck. However, after I sat down with a calculator, I realized I couldn't lose. The commission rate was so high that only one sale would pay as much as I made every month in salary, and making only one sale in a month at that particular job didn't take much. In the end, I quadrupled my income by switching to commission only, even though I wasn't selling any more than I had before. 2. Freedom. This one can be a double-edged sword. I always hated going into an office and trying to
work in an environment in which I wasn't all that comfortable and that was full of distractions. I've always gotten far more accomplished working from home. However, this isn't the case for everyone, especially those of you with families. (If working from home won't work, executives suites are plentiful and inexpensive.) In addition to the home office, you have the freedom to structure your time as you see fit. This is why it's a double-edge sword - some people don't have the discipline to make this work. But if you do, you can be FAR more productive than the person who must stick with the company's plan. 3. More productivity. Going back to the advantage of freedom, without mandatory meetings, forecasts, cold call blitzes, and the other many activities that are usually required for regular salaried salespeople, you have a lot more time to sell. Just the time spent commuting will free up at least an hour each day for most people. 4. More competitive. As an agent, you can sell whatever you want for whoever you want. As I said earlier, an independent agent representing every company in his or her respective industry need not fear competition. 5. Lower taxes. If you consult with a good accountant, you'll almost always pay less in taxes than a salaried employee. COMMISSION DISADVANTEGES 1. No financial guarantees. If you're on straight commission and you sell nothing, you earn nothing. Zero sales means no paycheck and low sales means a very small paycheck. This is the trade-off for getting the high commission rate. If you don't sell, you don't eat. 2. Freedom. I added this to the list of disadvantages as well as advantages because, as I said earlier, many people have not yet developed the self-discipline to "be their own boss" and as such, they wind up in the situation described in the previous paragraph. 3. Higher expenses. You won't be reimbursed for mileage, cell phone allowance, and all of the other costs, including ones you might not think of. Agents are generally required to carry a business insurance policy, and my first straight-commission job required me to carry one million dollars in auto liability insurance. It not only took me weeks just to find a company offering such high limits, but also wound up costing over $400/month. (The flip side is that, if you've structured things properly, all these expenses are also tax deductions, including part of your rent or house payment as a home office deduction.) 4. The Government. You'll need to file paperwork to form a business entity, you'll probably need to get at least one or more licenses or permits, and you'll need to be meticulous about having all your necessary tax deposits and paperwork in on time if you don't want to get into trouble. 5. Questionable security. Just like with a regular job, the company you represent may decide to drop it's agent program, they can terminate you without cause, or they may go bankrupt at any time.
Unlike a regular employee, you won't have any severance pay or other compensation coming to you if any of these things happen.
CONCLUSION
As I stated earlier, I'm in favor of working on straight commission. I made far more money doing that than I ever did at a regular job, and I enjoyed it a thousand times more because the freedom it offered fit perfectly with my independent personality. So I really can't give a "yes" or "no" answer to all the people who write in asking, "I'm having difficulty finding a regular salary + commission job, but I've been offered this straight commission opportunity - should I take it?" It really depends on yourself and your requirements. Hopefully the information in this artcile will give you some guidance and has brought up some points you may not have thought about in making your own decision.
Resources:
http://www.free-press-release.com/news-what-are-the-advantages-of-commission-based-paystructures-1274450079.html http://www.tutor2u.net/business/people/motivation_financial_commission.asp http://smallbusiness.chron.com/advantages-paying-commission-vs-salary-18625.html http://www.eyesonsales.com/content/article/salary_or_salary_commission/ http://www.sales-management-insight.com/sales-commission-plans.html
Serkan COŞKUN
122701027
Burak YAŞAR
122701026
1. Commission is a fee which a salesperson would receive upon completion of a sale. It is a motivational system of payment designed to encourage sales staff to sell more. 2. The amount of remuneration paid to a person who gives his service is called as.
BROKERAGE OR COMMISSION?
Commission is a payment made to employees based on the value of sales achieved. It can form all or part of a pay package. Commission is, therefore, a form of “incentive pay” (see also performancerelated pay, bonuses). Commission, like piece-rates, is a reward for the quantity or value of work achieved. In most cases, the employee is paid a flat percentage of the value of the good or service that is sold. The rate of commission depends on the selling price and the amount of effort required in making the sale.For example, commission rates could range from 5% where the product sells easily (e.g. household goods sold door-to-door) to 30% where the effort is substantial.
THE ADVANTAGES OF PAYING COMMISSION vs. SALARY
When you are deciding how to pay your employees, you should consider the benefits of paying by commission versus the benefits of salaried pay. There are advantages to both options for the employee as well as the employer. Consider all the possible advantages when you develop a payment scheme for your employees Commission: Employer Benefits Employers benefit from paying a commission to their employees because it means that they only pay the employee if there is a sale. This eliminates the burden of paying employees for work that does not result in sales. It also improves the cash flows of the business because it means that employees are only paid when money is coming in from a sale. Salary: Employer Benefits Paying employees by salary can be beneficial in a business where you want to offer strong customer support without pushing sales on your customers. By giving employees a salary, it removes the motivation to simply sell the most expensive products to a customer without truly considering her needs. Having salaried employees can, therefore, lead to better customer satisfaction. Commission: Employee Benefits Pay based on commission is beneficial to employees because they receive pay based on their skills and the work that they do. For employees who work hard and who are skilled in sales, they will be rewarded for their efforts. This can motivate employees to go above the minimum requirements, knowing that their efforts will result in higher pay. Salary: Employee Benefits Salaried pay offers advantages to the employee because it provides regular, dependable income. An employee with a salary knows exactly how much each paycheck will be worth. This means that the employee can budget around her salary without worrying that her income will fall short at any given
time.
SALARY OR SALARY+COMMISSION
One of the most common questions I get lately is from people who have been out of work or lost a job due to a layoff and are now faced with the decision to take a straight-commission job due to a steady decrease in the number of available salary + commission jobs. It's not an easy answer simply because each has its own advantages and disadvantages. Personally, I think the straight commission world offers greater opportunity and higher overall potential, but everyone's situation is different and what is right for me may not be right for the next person. So, with that in mind, let's take a look at each.
SALARY OR SALARY + COMMISSION
SALARY ADVANTAGES 1. Economic security. In a job with a base salary, you know you'll always have a paycheck and paying your bills will never be an issue. 2. Stability. Along with the steady paycheck, most jobs offering a base salary generally expect you to stick around for the long-term. In fact, longevity of a potential salesperson is usually highly scrutinized during the job interview and selection process. They expect you to stay with them for at least a few years, and they assume that you view them as a long-term, if not permanent, employer. 3. Training. Part of the stability and structure typically offered with a salaried position is a training program. Nearly all salaried sales positions have a formal new-hire training process, and most provide valuable ongoing training. This training will not only help you improve in your current job, but will be considered highly valuable by any potential employers in the future. 4. Expenses. Most (but not all) salaried positions provide basic expense reimbursement, usually mileage and cell phone at a minimum, with some providing more. 5. Benefits. With few exceptions, a salaried base + commission job will offer health insurance, possibly along with other fringe benefits. SALARY DISADVANTAGES 1. Reduced commissions. Nothing in this world comes without a price and the price for the security of a base salary is a lower commission rate. In most companies, the difference can be staggering. My first straight-commission job paid 17% compared to the 2% I was previously earning in the base + commission position. The reason for this is obvious. Employers decide upon how much money you
should make at 100% of quota, subtract your base salary and the cost of benefits and payroll taxes, and whatever is leftover becomes your total targeted commission. However, if your base salary is rather large, a low commission rate may not be an issue after all. 2. Less freedom. Another price for a steady base salary and the structure and stability of that type of position is that you are obviously an employee and will need to meet certain requirements. At a minimum, most salaried salespeople must show up for meetings, come into the office at set times or otherwise report in, complete certain reports and forecasts at set intervals, participate in company activities, and so on. 3. Time management. All the activities that a salaried salesperson must complete seriously cut into productive selling time. All that time you spend commuting to and from the office, filling out forecasts and reports, attending sales meetings, going through ongoing training, filling out expense reports, etc., is time that you cannot spend selling. The end result is reduced productivity. 4. Questionable security. While a base salary guarantees that you can pay the bills while you have it, there is always the risk of being laid off, or of losing your job thanks to a couple of poor sales months. Companies are really tightening the leash these days when it comes to sales reps who are not at quota. I know of companies who used to keep non-performing salespeople for six months or longer, and today they'll drop the same people in less than 60 days. 5. Lowered competitiveness. A salesperson who is an employee of a company can only represent that company, and therefore must continually battle the competition. 6. Higher taxes. 9 times out of 10, an employee will pay higher income tax rates than a self-employed commissioned agent who has consulted with a good accountant and structured his or her operation for maximum tax advantages.
STRAIGHT COMMISSION
Now, let's take a look at the advantages and disadvantages of working as a straight-commission salesperson: COMMISSION ADVANTEGES 1. Higher overall opportunity. A straight commission opportunity almost always pays a drastically higher commission rate than the same position paying salary + commission. When I was faced with the decision to take the plunge that first time, at first I was terrified at the thought of not having a steady paycheck. However, after I sat down with a calculator, I realized I couldn't lose. The commission rate was so high that only one sale would pay as much as I made every month in salary, and making only one sale in a month at that particular job didn't take much. In the end, I quadrupled my income by switching to commission only, even though I wasn't selling any more than I had before. 2. Freedom. This one can be a double-edged sword. I always hated going into an office and trying to
work in an environment in which I wasn't all that comfortable and that was full of distractions. I've always gotten far more accomplished working from home. However, this isn't the case for everyone, especially those of you with families. (If working from home won't work, executives suites are plentiful and inexpensive.) In addition to the home office, you have the freedom to structure your time as you see fit. This is why it's a double-edge sword - some people don't have the discipline to make this work. But if you do, you can be FAR more productive than the person who must stick with the company's plan. 3. More productivity. Going back to the advantage of freedom, without mandatory meetings, forecasts, cold call blitzes, and the other many activities that are usually required for regular salaried salespeople, you have a lot more time to sell. Just the time spent commuting will free up at least an hour each day for most people. 4. More competitive. As an agent, you can sell whatever you want for whoever you want. As I said earlier, an independent agent representing every company in his or her respective industry need not fear competition. 5. Lower taxes. If you consult with a good accountant, you'll almost always pay less in taxes than a salaried employee. COMMISSION DISADVANTEGES 1. No financial guarantees. If you're on straight commission and you sell nothing, you earn nothing. Zero sales means no paycheck and low sales means a very small paycheck. This is the trade-off for getting the high commission rate. If you don't sell, you don't eat. 2. Freedom. I added this to the list of disadvantages as well as advantages because, as I said earlier, many people have not yet developed the self-discipline to "be their own boss" and as such, they wind up in the situation described in the previous paragraph. 3. Higher expenses. You won't be reimbursed for mileage, cell phone allowance, and all of the other costs, including ones you might not think of. Agents are generally required to carry a business insurance policy, and my first straight-commission job required me to carry one million dollars in auto liability insurance. It not only took me weeks just to find a company offering such high limits, but also wound up costing over $400/month. (The flip side is that, if you've structured things properly, all these expenses are also tax deductions, including part of your rent or house payment as a home office deduction.) 4. The Government. You'll need to file paperwork to form a business entity, you'll probably need to get at least one or more licenses or permits, and you'll need to be meticulous about having all your necessary tax deposits and paperwork in on time if you don't want to get into trouble. 5. Questionable security. Just like with a regular job, the company you represent may decide to drop it's agent program, they can terminate you without cause, or they may go bankrupt at any time.
Unlike a regular employee, you won't have any severance pay or other compensation coming to you if any of these things happen.
CONCLUSION
As I stated earlier, I'm in favor of working on straight commission. I made far more money doing that than I ever did at a regular job, and I enjoyed it a thousand times more because the freedom it offered fit perfectly with my independent personality. So I really can't give a "yes" or "no" answer to all the people who write in asking, "I'm having difficulty finding a regular salary + commission job, but I've been offered this straight commission opportunity - should I take it?" It really depends on yourself and your requirements. Hopefully the information in this artcile will give you some guidance and has brought up some points you may not have thought about in making your own decision.
Resources:
http://www.free-press-release.com/news-what-are-the-advantages-of-commission-based-paystructures-1274450079.html http://www.tutor2u.net/business/people/motivation_financial_commission.asp http://smallbusiness.chron.com/advantages-paying-commission-vs-salary-18625.html http://www.eyesonsales.com/content/article/salary_or_salary_commission/ http://www.sales-management-insight.com/sales-commission-plans.html
Serkan COŞKUN
122701027
Burak YAŞAR
122701026
