Commission is a huge perk for salespeople who appreciate an uncapped earning potential and clear metrics of success. Commission structures are also a motivating factor that give salespeople some independence, help them reach on-target earning (OTE), and help managers meet goals month over month.
The average commission rate for sales sits somewhere between 20% and 30% of gross margins, but this depends on the sales structure. Some workers may earn their whole salary through 100% commission, while others earn 10% on top of a base salary.
Average sales commission rates by industry also vary depending on an employee’s specific role and experience. With so many factors, it can be difficult to nail down true averages. However, we’ve estimated typical sales commission rates using Glassdoor salary data to help you decide what fits your budget and maintains a competitive edge in the hiring pool.
|Industry||Performance-based Rates||Base Pay||Additional Pay*||Median Salary|
|Software as a Service (Saas)||32%||$79,356||$37,702||$117,058|
Commission rates are a set percentage or dollar amount of a gross sale that is rewarded to a salesperson as part of their compensation.
Entry-level salespeople may enjoy a 5% commission rate of the cost of every item sold on top of their base salary. More experienced salespeople or those in high-end industries may earn 100% commission for sales without any supplemental base pay.
Ultimately, commission rate and total annual salary vary based on commission structure and the salesperson’s experience.
Because there are so many variables, there’s no true average sales commission rate. However, many agree that 20%-30% is a typical range for sales representatives. Most companies pay a base rate (either by the hour or as an annual salary) in addition to the salesperson’s earned commission.
Commission rates go as low as 5%, though these companies typically offer significant base rates. Sales commission may also vary considering these factors:
If you’re not sure how fair your commission structure is, commit to industry research and compare employee costs to their value. Reviewing employee satisfaction and exit interviews can also clue you in to your employees’ feelings and how you can better meet their needs to retain a quality team.
Sales representative salaries aren’t so straightforward. A salesperson’s total potential earnings may be represented as on-target earnings (OTE), which is the sum of an individual’s base pay and entire commission earnings if they always hit sales quotas. Since commission earnings are based on performance, actual pay can vary.
Both commission and base rates depend on a number of variables, and managers should consider these factors when setting their rates:
For example, travel agents earn a median $60,000 a year, and 35% of that pay is earned through bonuses, commission, or tips. On the flip side, real estate agents earn over $136,000 a year, but just 28% of that is performance-based pay.
Real estate agents can’t sell as many homes as travel agents can book vacations, but the value of the average home is huge compared to a tropical vacation for four. So real estate agents earn a fair base pay to accommodate the time between sales, and earn a much larger commission from the value of a home.
Experience and seniority in the industry also play a strong role in determining pay. Experienced employees likely don’t need as much training to begin selling productively. Because of their knowledge and independence, you can hire them with confidence that training won’t exhaust your management team.
Additionally, they’re usually more confident salespeople. They can earn more sales more quickly, supplementing their own pay with a higher commission rate than an entry-level employee that will need training to work up to the sales floor and will likely be compensated with a higher base rate.
There are 10 basic sales commission structures that identify the balance between base pay and performance-based compensation.
Most salespeople want to earn commission to support their financial goals, while base rates provide a safety net for slow months or economic turmoil. Finding the right balance for your team is integral to attracting and retaining great employees.
Sales commissions can be based on dollar amounts or profit percentages, and are paid out with a salary or offer modifiers for smashing sales goals. There are many factors that can make identifying the best sales rate for your team overwhelming.
Below are some additional insights to help you pay your salespeople every penny they’re worth.
A 15% commission rate falls short of the typical 20%-30% range and of the performance-based rates we identified for key sales roles. For many experienced salespeople, 15% is a lower commission rate.
Employers can supplement a low commission rate with higher base pay and multipliers or tiered commission rates to encourage employees to exceed sales goals and earn the difference. Long term, however, this may not be an attractive option for senior employees.
A reasonable commission rate depends on the base salary offered, the value of the sale, and the time required to close a deal. A range of 20%-30% is most often cited as a reasonable commission rate. The average salary-to-commission ratio in the U.S. sits at 60:40.
Industries that require significant client education and relationship-building, like architectural sales, should earn higher rates than industries that have high quotas with relatively quick turnarounds, like insurance.
Determining the right commission rate for your team is a balancing act that requires a little bit of research upfront. First, determine:
In addition, you should consider your company’s current pay range and employee satisfaction. If entry-level and experienced salespeople are working within a similar pay range, you’ll want to boost rewards for top performers.
If you’re struggling to find new talent, you may increase your base rate to recruit better. If your team is struggling to meet sales goals, consider additional incentives with different sales commission structures.
A mix of external and internal research can show you where you’re over- or under-compensating employees so that you can keep a strong team without sacrificing sales goals or your business’s growth.
At the end of the day, your team comes to work to make a living and you pay them for their efforts that contribute to your business’s growth. To ensure you’re attracting new hires that want to help you thrive and providing them the compensation they deserve, it’s vital to stay up to date on sales commission rates by industry and cost of living expectations as they evolve.
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