Commission: What It Is And Examples

If you’re a top-performer at your job, you may feel dissatisfied with the standard 2% raise you’re given each year. After all, it only seems fair that greater contributions bring greater rewards.

For professionals like you, commission-based jobs may be the perfect solution. While they carry greater risk, they also provide the opportunity for unlimited earning potential.

In this article, we’ll explain the different types of commission and how much you can earn. You’ll also learn the benefits of working a commission-based job, as well as tips to help you succeed.

Types of Commission Pay

The first step to assessing if a commission-based job may be right for you is understanding the different types of payroll structures. By definition, a commission is simply a fee paid to an employee for transacting a piece of business.

However, payroll structures can differ in how much commissions compose total compensation, as well as other factors.

The main types of commission structures are:

• Straight commission. Also called “commission-only,” 100% of the pay an employee receives under this structure is composed of commission. There is no base hourly wage or salary, and all compensation is based on an agreed-upon percentage of sales.

  This pay structure is low-risk for employers, as they don’t need to worry about low-performing employees costing more than they contribute. It also rewards top employees, as their earnings scale with their performance rather than being fixed to a standard rate.

• Salary + Commission. This is the most common commission-based payroll structure within most industries. This structure strikes a balance by combining the performance incentivization benefit of commissions along with the stability of a base wage.

  For example, travel agents at Expedia are paid a base salary and receive a commission based on their sales and performance.

• Bonus commission. Bonus commission differs from the “salary + commission” model in that it’s not exactly a payroll structure. Rather, it’s a one-time event that companies may offer during the holidays or a busy sales season.

  This helps to incentivize maximum effort and performance among employees during times when it’s critical to the company.

• Variable commission. Variable commission is a more nuanced way to structure the “salary + commission” and “straight commission” systems, rather than it’s own payroll models.

  It simply means that the percentage commission that employees receive depends on the type of sale they make. Companies will typically use this strategy to incentivize employees to sell more of certain products.

  Product A may be in high demand and therefore earn employees a lower percentage of the sales price, while Product B is much less popular and offers a higher commission for successful sales made.

• Graduated commission. Graduated commission is a tiered compensation plan where new employees earn a base percentage of sales.

  As employees achieve higher total sales, they move up the pay tiers, and their rate of commission increases.

  For example, one real estate firm may offer a 5% commission for the first $100,000 of sales. Once an employee has made above $10,000, their commission is bumped up to 8%.

• Residual commission. This commission-plan is mostly used by companies with products that generate consistent revenue after the initial purchase.

  Suppose a subscription service charges a customer once each month. Under residual commission, the employee that secured the sale would be entitled to a percentage of that monthly fee.

  This is also a common commission structure used by companies selling software as a service (SaaS).

How Much Commission Can You Earn?

How much commission-based employees earn can vary widely depending on a few key factors:

• Payroll structure. A straight commission model offers the highest risk, with accordingly high rewards.

  You could outperform your peers and earn much more money than you would have from a salaried position or experience a poor season and make less than minimum wage.

  The salary + commission structure strikes the potential upside and downside. You may not earn as much during a good season but will be able to count on a base salary if you underperform.

• Personal performance. The entire concept behind commission-based jobs is that your compensation scales with your performance.

  If you’re a master at sales and communication, you might make several times more than you would have at a salaried position.

  If you’re a low performer, perhaps a job with guaranteed compensation would suit you better.

• The company and product. Needless to say, how much consumers demand your employer’s products impacts the difficulty of making sales.

  You could be a highly skilled sales representative, but you won’t earn much commission if nobody wants to buy the product.

• The industry. The median earnings that commission-earning professionals make differs between industries. A high performer at the local shoe store would likely earn more selling real estate for Redfin.

Pros and Cons of Commission-Based Compensation

Commission-based jobs offer different pros and cons from traditional salaried positions. Learn what they are so you can decide which type of career route is the better fit.

Some important advantages include:

• Control your own schedule. Many commission-based positions expect employees to meet a monthly sales quota but don’t dictate their work hours.

  High-performing employees may exceed their monthly requirements within a short amount of time and then use the rest of the month to relax at home.

  Others might choose to continue working in order to maximize their earnings. The choice is entirely up to you. Many non-sales positions, such as GrubHub drivers, don’t require a quota at all.

• Unlimited earnings potential. If a senior-level engineer innovates a solution that earns the company more revenue, they’ll likely only receive a pat on the back or a modest raise.

  In contrast, a commission-based job allows you to earn income that scales with how much you contribute. Develop your skills and abilities, and you’ll be directly rewarded.

• Performance transparency. Many salaried professionals experience anxiety over their perceived level of performance. It can be difficult to know how they match against their peers until the end-of-year review.

  With a commission-based position, you know exactly how well you’re performing – it’s right there in the numbers. As long as you’re exceeding your monthly sales quota, you likely won’t have to worry about your sales coordinator monitoring or interfering with your work.

• College degree not required. Many commission-based jobs don’t require a college diploma. Interviewers are more concerned with asking questions to assess if candidates possess the key personality traits required for the job.

  If you’re self-motivated, have strong interpersonal skills, and are willing to improve continually, you could easily make more than you would at a salaried position after completing college.

  Some roles do have education requirements, such as realtors who must earn real estate licenses before selling properties.

Some important disadvantages include:

• Income fluctuation. One of the great benefits of a salaried position is stability. Outside of getting fired, salaried professionals know precisely how much they’ll be making each month.

  This makes planning many aspects of life much easier, such as budgeting and investing.

  Even highly talented sales experts are prone to having a bad month or season with a commission-based job.

  Even if their overall earnings for the year are high, a period of low income could disrupt mortgage payments, rent, and other bills. Before interviewing for a sales job, assess your position in life and whether you can handle the risk.

• Banks perceive you as high-risk. Full-time sales professionals often need to pay higher premiums and interest rates on their mortgages and other loans, due to the high-variance nature of their job.

  If this concerns you, you may want to consider a commission-based job as only a part-time gig to earn supplemental income.

• Requires self-discipline. A salaried job will consistently pay you as long as you’re contributing enough not to get fired. If you apply the same minimal level of effort to a commission-based job, you’ll likely earn much less income.

  These positions will only reward you if you’re self-motivated and willing to put in the work to outperform. This is especially the case for straight-commission based jobs such as offering professional services through Thumbtack.

• You have to be independent. With most commission-based jobs, you’ll usually have a team of peers to learn and collaborate with.

  However, this level of collaboration tends to only go so far, as individuals are incentivized to outperform one another in order to maximize their earnings.

  To succeed, you’ll have to be comfortable with not relying on others to develop and improve your skills. Exceptions do exist, such as when teams are compensated based on total sales.

Tips for Working in a Commission-Based Job

As career advancement experts, the folks here at Zippia have observed what sets top-performing sales professionals ahead of the pack.

Here are the top tips and mentalities to consider when working a commission-based job:

• Set sales goals. Countless studies have proven that setting mental goals increases one’s motivation and level of performance.

  It doesn’t matter how disciplined you are – if you simply devote maximum effort each day with no sales goal in mind, you’ll eventually get burnt out.

  Telling yourself, “I will attempt to sell X amount by Friday,” focuses your mind and helps you maintain your momentum.

• Foster an entrepreneurial spirit. Entrepreneurship isn’t just about persistence; it’s about creativity and innovation.

  Most commission-based jobs are highly competitive, with many of your peers putting in countless hours. Simply grinding hours will not be enough to outperform; you’ll need to analyze how to improve your skills and develop new approaches.

  The top performers at commission-based jobs always have personalities that enjoy this time of challenge.

• Resiliency. Even top-earners at commission-based jobs experience significant setbacks. It’s not uncommon to fall into a sales slump for a week, month, or even entire sales season.

  What determines success is your ability to pick yourself up and try again. Rather than becoming discouraged, analyze what issues you need to address and how to improve.

• Pace yourself. Resilience and persistence are critical traits for sales professionals to have. However, nobody is immune to burnout.

  If you’ve been exceeding your goals and working overtime to achieve the top sales position for months, don’t be afraid to take a moment to relax.

  Top performers recognize this and allow themselves to take a vacation before resuming their success.

Final Thoughts

Switching to a commission-based job is often either the best or worst career decision that professionals make. While they allow for unlimited earning potential, they also pose risks that traditional salaried positions do not.

It all comes down to an individual’s career goals, personality, and willingness to develop the particular skills required of commission-based roles.

Consider all the information we’ve provided, and feel free to browse the rest of Zippia’s career development resources.

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.