The sales commission invoice is for any agent, broker, or affiliate partner that assisted in the sale of a product or service. Depending on the arrangement between the parties, the commission represents a percentage ($) of the total sale that is due to the party due the commission. This invoice may be used by an employee or an independent contractor with payment of the commission due and payable immediately after the sale occurs.
What is Commission Sales?
There are many jobs where people do not earn salaries (not paid based on time). Instead they are hired to perform. Based on their performance, they are paid in the form of a commission. Commissions are calculated based on the percentage of the sales price. Being paid on commission can be a stressful way to live as there is no paycheck guarantee at the end of each week. However, those who are successful under a commission based pay structure can often make much more money. Companies benefit from offering commission based pay due to the incentive it gives their employees.
Skill sets commonly held by those who are paid based on commission:
- Excellent verbal communication
- Knowledge on the art of a sale (closing a deal)
- Clean appearance
Sales Commission Structure
When building a sales team or offering a sale position based on commission, it’s important to put a structure or plan in place. When hiring people to sell, it’s common to give employees a minimum base pay plus a commission. If a business model is dependent on a sales team closing deals, it’s worth it to pay them up to 10% of gross net profit. As for other professions when the sales person is their own boss, such as a real estate broker, it’s not necessary. A real estate agent’s only pay will be the commission of the sale, therefore a commission structure is not needed.
Commission percentages are typically fixed and do not change unless an employee reaches a benchmark or threshold that opens up the next tier. For example, if a salesperson closes over 1 million dollars in sales at a 5% commission with a given time, any commissions collected afterwards will be collected at a 6% rate. Benchmarks are great to include in a commission structure as they give an extra layer of incentives to a team of salespeople.
Two types of Structure:
- Commission only
- Commission + base salary (recommended)