How a good commission structure can boost your bottom line

Managing people

4 May 2016

A good commission structure can play a big role in connecting your sales staff with your business, ensuring your goals are aligned and your team are happy and productive.

And with 56% of UK retailers identifying staff turnover as an important measure of success, it could also be a good way to hold on to your most talented employees.

Metrics and methods

Paying a percentage commission per sale is common practice – but although it's useful to encourage easy sells like discounted or clearance items, it might not actually improve your profit margins.

For better results, you might consider using your commission structure to encourage a positive sales culture or to introduce new products and strategies; either by offering commission on upselling or cross-selling items, rewarding new customer sign-ups or improving customer experience and loyalty. Or, you might award a percentage commission or bonus on certain product lines.

However, one of the fairest approaches to commission is a profit share, calculated according to each salesperson’s contribution towards an overall goal.

Doing the maths

So, how do you set up a profit share structure? Here's our seven-step guide to the sums involved:

  1. Use historic data and your latest projections to set a monthly sales (or profit) target.
  2. Decide on the reward when an employee exceeds the target. This could be a fixed bonus, or shared portion of an amount over the goal (a ‘profit pool’).
  3. Next, list the sales hours committed each month – this is the number of staff multiplied by the number of hours they’ll work.
  4. Divide the goal by the total number of hours to get the amount of sales needed per hour for each salesperson to achieve the goal.
  5. Each day an employee works, let them know the total they’re encouraged to sell.
  6. At the end of the month, divide each employee’s total sales by their total hours to get their per hour sales.
  7. If you hit your shop goal, each employee who exceeded their hourly goal receives their commission.

By removing the direct connection between individual sales and the amount each employee receives, this stops some staff benefiting from optimum hours, or prime positions in your store.

Building a rewarding system

A really successful commission structure motivates your whole team and meets wider business targets. To do this, you may want to introduce additional bonus elements. For example:

  • Gamification: encourage healthy competition by offering an added bonus or reward for sales staff who sell the most of a specific product. This is both a fun and effective way to encourage upselling, cross-selling or customer sign-ups.
  • Peer-to-peer recognition: use an anonymous ‘pay it forward’ box to let staff and customers tell you when someone does a good job, so you can reward them.
  • Personal development targets: reward staff for learning about a new product, keeping the store in shape or restocking in busy periods.
  • Non-cash motivators: a survey by McKinsey & Company found that managerial praise and opportunities to lead new projects or teams can be as effective as cash at boosting morale.

Managing your schemes

Specsavers has an ePoints scheme that rewards each employee for achieving a range of sales and personal development targets. It’s a great example both in terms of tailoring staff rewards and tracking ongoing improvements.

But even if you don’t have the financial firepower for an electronic system like theirs, keeping records of whether your employees are meeting their targets will help you hone your schemes, develop your team and foster success in the long-term.

So what’s your tips for creating a commissioning structure? Or if you’re a salesperson, what incentives work best for you? Tell us all about it in the comments below.