The sales commission invoice is for an 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.
What is Commission Sales?
There are many jobs where people do not earn salaries (not paid based on time). Instead, they are hired based on their performance and 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 earn exceedingly high wages. To add, companies benefit from offering commission-based pay due to the incentive it gives their employees.
The following are skill sets commonly held by those who are paid based on commission:
- Excellent verbal communication
- Knowledge on how to close a deal
- Networking ability
Sales Commission Structure
When building a sales team or offering a sales 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. In other professions where the salesperson is their own boss—such as a real estate broker—this is not necessary. An independent 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 threshold that opens up a new tier. For example, if a salesperson closes over 1 million dollars in sales at a 5% commission with a given time, any commissions collected afterward will be collected at a 6% rate. Benchmarks are great to include in a commission structure as they add an extra layer of incentives to a team of salespeople.
There are two (2) types of commission pay:
- Commission only – Examples such as real estate agents, medical equipment sales, etc.
- Commission + Base Salary – Examples such as car salesperson, insurance salesperson, etc.
The commission sales invoice may be used by an employee or an independent contractor with payment of the commission due and payable immediately after the sale occurs.