Fixed salary, commission, bonus: how much should a salesperson be paid?

Commission and sales are two words we often hear together.

While remuneration is naturally a driving force for everyone, it is particularly so in the sales sector, where representatives must redouble their efforts to conquer, sell and outperform the competition.

For a company whose success depends in part on its sales force, a motivating remuneration package is essential to boost sales performance.

But what kind of remuneration system should you adopt: fixed, variable or both?

See all software Business Management

How is a salesperson paid? The different types of remuneration

Fixed remuneration

Whether commission-based or not, a salesperson earns a fixed salary. This is because, in addition to sales, their activities include day-to-day tasks such as customer relationship management, CRM database updating and customer follow-up.

☝️ Naturally, the amount of a salesperson's salary varies according to seniority. According to MyBizDev, an entry-level salesperson's salary (average fixed salary) is €23,000 per year.

Variable remuneration

In addition to the fixed salary, the company often offers a variable compensation plan. This enables them to offer a reasonable fixed salary, topped up with a variable component that encourages and rewards performance.

Whether it's a sales commission or a target-based bonus, a pre-determined percentage or amount is rewarded according to sales achieved or targets met.

☝️ According to UpToo, the average sales salary in 2021 will be 51,000 euros gross per year, including 13,000 euros in variable bonuses.

Commission or bonus, how to choose?

The good news is that commission and bonus are not mutually exclusive.

A company can pay its sales reps commission based on sales achieved, and bonuses based on the achievement of related sales targets.

Here's how they differ, and when they apply.

Sales commission: advantages and disadvantages

Sales commission is a variable remuneration based on results. It can be a percentage of:

• sales excluding VAT,
• MRR (Monthly Recurring Revenue ), for companies invoicing subscriptions,
• gross margin, etc.

It's ideal for salespeople who are responsible for sales from A to Z.

In general, commission is calculated from the first euro of the sale, but some advocate defining a trigger threshold, when there is a fixed salary.

👍 The main advantages of sales commission are :

• it's easy to set up, calculate and understand for both sales and payroll staff;
• it offers a significant increase in the variable part of the salary, making it a great motivational lever.

👎 The major drawback is that remuneration is based on sales volume, which can push salespeople to sell more and more, to the detriment of customer relations objectives, which are increasingly at the heart of sales strategies.

There is also a risk of inequality between salespeople, and of easy remuneration for those who already have a highly developed portfolio and can trigger recurrent sales (sometimes referred to as situation rents).

Target bonuses: advantages and disadvantages

Also known as bonuses, target bonuses reward not only sales growth, but also the performance of the sales team. They are therefore based on both quantitative and qualitative indicators, unlike commission-based bonuses.

Paradoxically, qualitative indicators must be quantifiable. If they can't be measured, it's hard to calculate a bonus!

Example of measurable quality indicators:

• evolution of the customer satisfaction rate,
• the proportion of sales generated by new customers.

Target-based bonuses are therefore best suited to salespeople who are not solely responsible for sales. It is defined for one period, and the target is reset to zero at the beginning of the following period (month, quarter).

Calculated according to the achievement of a target, and sometimes its overachievement, it can also be capped.

For example: a bonus of €100 per month is awarded if 10 new customers have signed up during the month. If 11 new customers have signed up by the end of the period, the bonus can be calculated as follows: 110% of the target, i.e. 100 x1, 10 = €110 bonus.

👍 The advantage of the bonus is that it encourages sales development, but also the achievement of other equally strategic objectives.

👎 But the bonus system is more difficult to set up and calculate: who can benefit from it, the sales team, the marketing team too? And according to what objectives? How can we ensure that the latter are motivating but realistic, so as not to provoke the opposite effect?

How do you define a compensation plan for your sales team?

Defining a remuneration strategy based on objectives

You've already understood the advantages and disadvantages of commission and bonus.

It all depends on the sales and marketing strategy in force: is it to develop sales or service quality? Volume or value?

What's more, in some companies, the sales team may be divided according to distinct missions and sales objectives:

• The SDR (Sales Development Representative) is in charge of generating sales opportunities (leads), qualifying them and then prospecting.
  ▶ ️ A bonus is set according to the number of qualified leads transmitted to the Æ.
  
  
• A customer account manager, or Æ (Account Executive), converts the prospect into a customer.
  ▶ ️ He makes the sale. He or she may earn a commission based on the amount of sales before tax generated, or a bonus based on the number of contracts signed.
  
  
• The CSM, Customer Success Manager, is the salesperson who accompanies the customer after the sale, from onboarding to support, so that he or she is satisfied.
  ▶ ️ This professional's bonus can be valued in relation to the retention rate, or NPS for example (recommendation rate).

Determining the compensation system

Depending on your business model, whether you're just launching or in a perennial situation, think about these questions. Is it better to :

• mix fixed salary and commission on sales, or remunerate solely on commission?
• Should you opt for capped commissions, or offer tiered commissions?

Fixed and variable salaries

▶ ️ A fixed salary pays for the salesperson's skills. If it's too low, it can not only complicate your recruitment, but also undermine the salesperson's motivation. If it's too high, it can also diminish his or her involvement in developing the customer portfolio or sales.

Be careful, even if there is a variable remuneration component, the fixed salary must not be below the minimum wage.

▶ ️100% variable pay does exist, but it's risky for the quality of the customer relationship and the efforts the salesperson will invest in it.

It only applies to independent or outsourced salespeople, who are more likely to want to sell fast and a lot than to sell well. A salesperson paid on commission may also feel financially insecure, and sooner or later find a more comfortable and less stressful remuneration elsewhere.

Capped or tiered commission?

▶ ️ Commissioning is a remuneration system that rewards performance to motivate the salesperson to close as many sales as possible.

Capped, it can be interesting to avoid a "gold rush", and so that the company can estimate and control the budget dedicated to remunerating salespeople.

Nevertheless, it can slow down sales performance once the target has been reached. But the time he doesn't devote to finding new sales can also be used to pamper his customers, and trigger new sales later!

▶ ️What about tiered commission? How does it work?
For example, a salesperson earns 100% of the commission if he or she reaches between 80% and 100% of his or her target, and 125% if he or she reaches between 100% and 150% of the target. The risk here is that he'll be satisfied with reaching 80% of his target to receive his full commission.

How to calculate the commission system or plan?

1. Define the basis for commissions: certain products or services with low margins may be excluded from the commission plan, so you need to draw up a list of those eligible for commission.
   
   
2. Define the commission rate: it may be fixed, but it may also vary according to the difficulty of selling a given product, in which case a commission scale should be drawn up.
   
   
3. Choose capped, tiered or progressive commission: commissions can be capped, but they can also be increased once a certain level of sales has been reached. It's up to you to see what motivates your troops the most, and adjust accordingly.
   
   
4. Choose the commission period: monthly, quarterly? Weekly? Periods that are too long are not effective: sales reps need to see the results of their work on a regular basis.
   
   
5. At the end of each period, calculate the amount to be paid to the sales rep, based on the commission base, multiplied by the applicable rate(s), if any.

☝️ To save time and avoid errors, we recommend the use of sales management software such as EBP Gestion Commerciale. This tool enables you to optimize your entire sales chain, including the management of your sales force: it takes into account your commission scale and the type of commission (on sales achieved or collected, etc.) to easily remunerate your sales team.

See all software Business Management

How much commission should a salesperson earn?

Here's an example of a remuneration scale for salespeople working in the online software sector, based on the 2021 trends observed by UpToo:

Defining a commission is more complex than a simple percentage, as it also depends on the fixed salary offered. The key is to find the right balance between sales performance and employee well-being, to ensure long-term commitment.

Whatever the remuneration system, be transparent with your team. Pay and commission scales must be clear and communicated to achieve the desired motivating effect.