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Originally Posted On: https://www.kinitro.com/blog/average-sales-commission-how-to-set-your-incentive-compensation

 

In the US, the average sales commission is 10% of the total sale. This may vary depending on the industry, but typically, the average commission is between 5-20%. Sales commission is often used as an incentive for employees to increase sales and encourage them to continue meeting quotas.

When it comes to setting incentive compensation, it’s important to consider what the average sales commission is. That way, you can ensure that your employees are being offered a competitive wage that will motivate them to sell more products or services.

In this blog post, we’ll take a look at the average sales commission across a variety of different sectors. We will also provide some tips on how to set your incentive compensation accordingly.

Read on to learn how to set your commissions with sales compensation software.

 

Sales Commissions: The Incentive and the Power for Your Business

Sales commission is a popular way to incentivize employees – and for good reason. It can be an extremely effective method of motivation, as it gives employees a direct financial stake in the success of the company.

In fact, studies have shown that salespeople who are given commissions are likely to sell more than those who are not.

However, setting the right level of sales commission can be tricky. If you set the rate too low, your employees may not be sufficiently motivated to sell.

If you set it too high, you may find yourself overpaying for sales that would have happened anyway. So how do you strike the perfect balance?

The first step is to understand what the average sales commission is in your industry. This will give you a good starting point from which to adjust the rate up or down, depending on your company’s specific needs.

Industry-Specific Sales Commission Rates

The average sales commission can vary significantly from one industry to the next. For example, according to Clever, the average sales commission for a real estate agent is 2.5%, while the average for a car salesman is 10%.

Clearly, there’s a big difference between these two industries. And that’s before we even consider other factors, such as the type of product being sold or the location.

To get an idea of the average sales commission for your specific industry, do some research online or speak to other businesses.

Once you have a good understanding of the going rate, you can start to think about how to adjust it to suit your company’s needs.

 

Foolproof Rule of Thumb for Creating Baseline Incentive Commissions

There’s no need to overcomplicate things when setting the level of sales commission.

A good rule of thumb is to start with a rate that’s in line with the industry average. Only then adjust it up or down depending on the type of product being sold.

For example, if you’re selling luxury goods, you may want to increase the sales commission to 10% or even 15%. This is to provide a greater incentive for employees.

Alternatively, if you’re selling low-cost items that are easy to sell, you may want to reduce the rate to 2% or 3%.

Of course, there’s no hard and fast rule here – it all depends on your company’s specific needs. The important thing is to make sure that you’re offering a competitive wage that will motivate your employees to sell more.

 

The Benefits of Using Commission Sales Management Software

If you’re looking for a way to manage your sales commissions, commission sales management software could be the answer.

This type of software allows you to automate the process of calculating and paying commissions. This can save you a significant amount of time and money.

In addition, it can help you to keep track of your employees’ sales performance and ensure that everyone is being paid fairly.

There are a number of different commission sales management software packages available on the market, so it’s worth doing some research to find one that’s right for your business.

Once you’ve found a package that meets your needs, you’ll be able to start using it to streamline your commission payments and improve your overall sales performance.

 

Factors to Consider When Adjusting Your Sales Commission Rate

There are a number of factors you need to consider when setting your sales commission rate. Here are just a few of the things you should keep in mind:

Do Research

Before setting the sales commission rate, it’s important to do your research and understand what the average rate is in your industry.

This will give you a good starting point from which to adjust the rate up or down, depending on your company’s specific needs.

Consider the Product

The type of product you’re selling should also be considered when setting the sales commission rate.

If you’re selling high-end luxury goods, you may want to increase the sales commission to 10% or even 15%.

Alternatively, if you’re selling low-cost items that are easy to sell, you may want to reduce the rate to 2% or 3%.

Think About Location

The geographical location of your business can also have an impact on the sales commission rate.

If you’re selling in a market where competition is fierce, you may want to increase the rate to give employees a greater incentive to sell.

Alternatively, if you’re selling in a more rural area where there are fewer competitors, you may be able to get away with a lower sales commission rate.

Once you’ve considered all of these factors, you should have a good idea of what the right sales commission rate is for your business. Remember, though, that this is just a starting point – you may need to adjust the rate up or down over time, depending on how your business evolves.

 

Tips for Managing Sales Commission Payments

Paying sales commission can be complex and time-consuming, particularly if you have a large sales team.

To make things easier, it’s worth using software that can automate the process. This will not only save you time and money, but it will also ensure that commission payments are calculated accurately and paid on time.

If you’re not sure which software to use, we recommend taking a look at our service, Kinitro.

It’s designed specifically for businesses that pay sales commissions. It comes with all the features you need to manage commission payments effectively.

It also includes automated calculations, real-time reporting, and integrations with popular accounting software.

Also, make sure you have a clear and concise commission structure in place so that everyone knows what they need to do to earn their commission.

And don’t forget to review and update your commission structure on a regular basis. As your business grows and changes, so too should your sales incentives.

 

Common Mistakes With Sales Commission Businesses Make

One of the most common mistakes businesses make with sales commissions is failing to review and adjust the rate on a regular basis.

Sales environments can change quickly, so it’s important to stay on top of things and make sure that the commission rate you’re paying is still appropriate.

Another mistake businesses sometimes make is failing to clearly communicate the terms of the sales commission agreement to employees. This can lead to confusion and frustration, so it’s important to be as clear as possible from the outset.

Also, be sure to avoid paying commissions on sales that are never finalized. This can create a perverse incentive for employees to push for deals that are unlikely to close, which is not good for business.

Don’t forget to withhold the appropriate amount of tax from commission payments. If you don’t, you could end up with a hefty bill from the IRS.

Finally, some businesses mistakenly believe that they can save money by not paying sales commissions at all. However, this is often counter-productive, as it can lead to lower sales and motivated employees leaving for companies that do offer commission.

 

Listen to Your Employees to Make Appropriate Adjustments

To avoid making mistakes with sales commissions, it’s important to listen to your employees and get their feedback on the current arrangement. They’re the ones who are out there selling your products and services, so they have a good idea of what’s working and what isn’t.

If you make changes to the commission structure, be sure to communicate these clearly to employees. They need to know what they do to earn their commission and how much they can expect to receive.

Finally, remember that sales commission is just one part of a larger employee compensation package. Be sure to consider other factors, such as salary and benefits, when deciding how much to pay your employees.

Get in touch with us to get started with the simple and comprehensive solution to your needs.