In the digital age and network marketing, commission models are becoming increasingly popular. This is a way to promote cooperation and mutual development in all areas of business. Let's explore the concept of “what is a commission?” and learn important information to create a stable income from this model.

What is a commission?

Commission is a commonly used phrase in everyday life, especially in the business field. This is the amount of money that you receive based on cooperation or transactions with other partners or companies.

It is usually calculated based on a percentage or a specific value of the transaction or sales. The commission model is often used as a way to promote collaboration and motivate others to participate in your project or product by sharing in the profits or value created.

The meaning of commissions for businesses and sellers

Commissions are important to both businesses and sellers. Here's what the commission means for both parties:

For Businesses

  • Boost performance:

Commissions are a powerful tool for driving sales team performance. By linking income to personal achievements, businesses motivate salespeople to work harder to achieve sales goals.

  • Increase sale revenue:

Commissions incentivize efforts to find and close new deals. This helps increase sales and overall revenue of the business.

  • Performance pay only:

Commissions help businesses pay sellers only based on actual performance. It means the company only has to pay when there are sales, helping to control costs.

  • Attract and retain talent:

By paying commission-based salaries, companies have the ability to attract and retain employees with excellent abilities and performance. Businesses have the opportunity to select and retain good employees and they will have the potential to grow faster over time.

For sellers

  • Create personal motivation:

Commissions are a powerful source of motivation for salespeople to work hard and focus on achieving personal goals.

  • Earn additional income: 

Commissions are a way for salespeople to earn additional income, in addition to a fixed monthly salary. This can create greater financial opportunities and increase personal income.

  • Self-management of time: Commission models often allow salespeople to manage their time flexibly, making their own decisions about work schedules and how to approach customers.
  • Develop sales skills: To optimize commission income, salespeople often have to develop sales, communication, and persuasion skills.

Commissions play an important role in driving performance, motivating, and creating financial opportunities for both businesses and sellers. It is an important part of the billing and management model for achieving success in the sales industry.

Some outstanding ways to calculate commission percentages

Commission percentage divided by sales

This is a form of commission sharing where the company sets a specific revenue threshold for sales staff. If this sales target is reached, the employee will receive the corresponding commission amount. This method helps businesses easily control costs and is most commonly used.

The calculation formula is

Commission = Selling price x Commission percentage.

For example, at a mobile phone store, if the commission percentage is 5% and employee A sells a product worth 1000 USD, he will receive 50 USD in commission.

Gross profit commission percentage

This is a form of commission based on the gross profit of the product. When a product is sold at a price higher than the cost of production, the difference in revenue is gross profit. Salespeople will receive commissions based on this gross profit.

For example, if a cake has an import and processing price of 50,000 VND and is sold for 55,000 VND, the difference of 5,000 VND is the gross profit.

Revenue gates commission percentage

This type of commission is more complex. It has the potential to be highly profitable for salespeople. This commission is based on productivity and revenue. It means you will receive higher commissions when you sell a lot of products or achieve large revenues.

For example, you are a real estate agent and participate in the brokerage company's revenue gates commission program. In this program, there are three different commission levels based on the real estate revenue you achieve in a year. 

  • Level 1: If you achieve a total revenue from real estate transactions for the year of less than $500,000, you will receive a 3% commission on the total revenue.
  • Level 2: If you achieve total revenue from real estate transactions between $500,000 and $1 million, you will receive a 4% commission on total revenue.
  • Level 3: If you achieve total revenue from real estate transactions over $1 million, you will receive a 5% commission on total revenue.

The most common ways to calculate commissions in business

There are many ways to calculate commission percentage depending on the business field, salary level and welfare regime of each business. Below is the most common way to calculate commissions for salespeople.

Calculate fixed commissions

  • A fixed commission percentage is a commission percentage that does not change, regardless of whether sales are large or small.
  • Advantages: Brings a relatively fair level of competition and rewards for employees.
  • Disadvantages: Does not create a strong motivation for development, emulation, and healthy competition.

Calculate commissions according to the ladder

  • Calculate commissions according to a ladder that stipulates the commission percentage based on the level of revenue that the salesperson brings.
  • Advantages: Motivates employees to try to bring in more revenue.
  • Disadvantage: Can lead to large levels of attrition when employees who do not meet goals are eliminated.

Calculate commissions by project

  • This calculation applies to specific projects. The more projects an employee participates in and achieves KPIs, the higher the commission.
  • The commission for each project is not fixed, depending on the scale and effectiveness of the project.

Calculate commission by conditions

  • You will receive a commission if you meet the conditions set by the business, usually there is no fixed amount.

Calculate commission by seniority

  • The seniority-based commission is a form of compensation for employees who have worked for the company for many years.
  • Companies that apply this calculation method are usually large, they will give shares to long-term employees to show gratitude for their contributions to the company.

These commission calculation methods have their advantages and disadvantages and businesses often choose the calculation method that suits their business model and goals.

When implementing contracts related to commissions, businesses need to follow the following regulations:

  • Make a written contract: Make sure the contract is written and fully records the terms and conditions of both the buyer and the seller.
  • Negotiate reasonable commission levels: Discuss commission levels that are fair and appropriate to the market and current business situation.
  • Define clear rights and obligations: Clearly define the rights and obligations of each party to ensure transparency and accuracy.
  • Agreement on time and payment method: Determine commission payment time and payment method.
  • Fulfill obligations on time: Parties need to perform their obligations fully and on time to avoid delays in commission payments.
  • Regularly monitor and update: It is necessary to regularly update and monitor the implementation of contracts to ensure transparency and accuracy in calculating and paying commissions.
  • Compliance with legal regulations: Ensure compliance with legal regulations related to the use of commissions.
  • Avoid commission abuse: Do not use commissions to stimulate employees or sales partners to achieve business results at the expense of product or service quality.
  • Dispute resolution: If there is a dispute related to the use of commissions, it should be resolved according to legal procedures and ensure transparency and fairness.

Summary

Establishing an effective commission policy is often considered an important driver to boost the productivity of the telesales team. Commission policy is a means to encourage and increase employee motivation.

StringeeX not only provides an omni-channel contact center but also a comprehensive telesales management solution. It combines professional contact center functions with customer information management features (mini CRM), which are suitable for businesses of all sizes. 

Basic features of StringeeX - a telesales management software include:

  • Flexible operation: Employees work unifiedly on a single software. Because it is built on Stringee's powerful API platform, StringeeX telesales management software can be easily integrated with other software in the future.
  • Detailed reporting and statistics system: StringeeX software helps businesses synthesize and manage customer records at specific times. Real-time call monitoring helps support easy administration and management.

  • CRM integration: StringeeX is pre-integrated with mini CRM so businesses can use it immediately with basic customer contact management features. In addition, StringeeX supports integration with third-party CRMs such as Salesforce, Hubspot,...
  • Smart calling support features: StringeeX provides automatic features that help increase staff working speed, such as allowing 3-way voice participation, connecting customers with the latest agent automatically, allowing the appointment of agents, etc.
  • Employees can work remotely: StringeeX supports employees to work on any computer device or personal phone (the mobile app supports both iOS and Android) without geographical location restrictions.
  • Enhanced security: StringeeX software provides the best protection for business data at the data center with backup and intrusion prevention options.

With the features that Stringee Telesales management software brings to your business. Administrators can easily manage employees even when not in the office. Telesales staff will reduce the process of searching for customer information, save time, and improve work efficiency.