What is a Commission Plan?

A commission plan is a system that companies use to pay their sales staff. It is a way of linking employee compensation directly to how much business they generate. In most cases, the more sales an individual makes, the higher their commission will be. This provides employees with an incentive to sell as much as possible and also allows businesses to reward their top performers. Commission plans can vary significantly from one company to another, but they all typically involve some form of percentage-based commission.

Commission plans can help to increase sales by providing employees with an incentive to sell more. When employees are motivated to sell, they are more likely to put forth the extra effort needed to close deals and make sales. In addition, commission plans can also help to improve customer service. By providing employees with a financial incentive to provide excellent customer service, companies and organizations can encourage employees to build strong relationships with customers. Finally, commission plans can also be used to attract new employees. By offering a commission plan, companies and organizations can show potential employees that they are willing to invest in their success.

The three types of commission plans are straight commission, draw against commission, and base salary plus commission. In a straight commission plan, salespeople are paid a percentage of their sales. In a draw against commission plan, salespeople are given an advance (or "draw") against their sales; they typically make lower commissions but receive some money up front to help them make sales. In a base salary plus commission plan, salespeople are paid a guaranteed salary plus a commission on their sales.