What is the average commission rate for entry level sales reps?
I want to hire a few entry level sales reps to work off only commission. What percent commission rate should their payout be depending on the how many sales they make? How do you adjust the commission rate based on the sales volume?
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Mar 17, 2016
Hi Jeff,
Great question. As stated before it depends on many points. Which I will not cover again. I think Bob Hatchers points covers it well.
If yours sales target was something like $1M then 5-10% would be fine.
People in Real Estate work on less that 5% . If you are selling bits and bob's then maybe 35% would be more closer to the mark.
Apart from working it out via a cost plus formulation, the one thing you must do is make sure that it is fair. Obtainable against sales targets so that the salesperson can make a living.
Build into to the structure an incentive bonus for sales over budget.
The best way to do that is to set a budget. Set 95% as your 0 bonus.
and then reward the sales guys with a % bonus for every dollar over the 95% mark. You can set that in steps so that each sales person has a pot of gold to aim for. The % bonus is only based on the $'s above the mark not on the total which is the base commission.
There is a simple philosophy which goes like this.
"As the bose, I am happy if my sales people earn more than I do."
Make sure that they have all the tools and support for them to do their job. remember it's your job to make sure that they succeed.
If they do , you will.
Mar 16, 2016
Here is a link that answers the question: what commissions should i pay my new salesperson. http://blog.capterra.com/what-commissions-should-i-pay-my-new-salesperson/
Mar 16, 2016
Jeff: Typical in-house costs run between 18% and 20% of sales so ranges of 15% - 20% are common. I assume you are looking at a straight performance based compensation system to conserve cash while you build your business versus trying to "manage" the compensation of the sales person...if this is not the case, you should reconsider. Nothing is more demotivating to someone in sales who is "bringing the gold to the table" than to have the king try to take a bigger and bigger piece of the pot they just carried in. Remember, in a straight commission world, the sales person is taking all the risk and there is clearly an opportunity cost as well as real expenses to recover from their sales activities.
Assuming you have an established product in an established industry, 15%-20% would be considered a standard commission. When you come across an individual with established experience and contacts within your exact industry, that can be worth up to 35% for a period of time (say the first 12-24 months, depending on your sales cycle), then switching to the standard of 15%-20% on renewals at least. You would not want to continue to pay the higher % past that time frame un less on New Business only.