Terms

Commission

Commission is a form of performance-based compensation paid to an employee after completing a specific task, most often selling a certain number of products or services. It is typically calculated as a percentage of the total sales value, directly tying an employee's earnings to their job performance. This structure is designed to motivate employees to achieve specific goals and increase productivity.

Historical Context

The word "commission" traces back to Latin, meaning to entrust or delegate authority. It entered English in the 14th century. Initially, it referred to a formal grant of power or a specific task assigned to a person or group.

This concept of entrusting a task naturally evolved into a form of payment for its successful completion. The practice became widespread in trade and sales, directly linking compensation to performance. This created a powerful incentive structure that remains fundamental in business today.

Types of Commissions

Commission structures are tailored to motivate specific sales behaviors and align with company goals. They can range from simple, fixed-rate models to more complex systems that reward higher performance.

  • Straight: A fixed percentage paid on every sale, regardless of the total volume.
  • Tiered: The commission rate increases as sales targets are met and exceeded.
  • Blended: A hybrid model combining a guaranteed base salary with variable commission earnings.
  • Renewal: Payments earned on recurring business, such as client contract renewals or subscriptions.

Commission vs. Committee

While both terms can refer to groups of people, "commission" and "committee" serve fundamentally different purposes in a business context.

  • Commission: This can be a group with formal authority to perform a task or a performance-based payment structure. It excels at motivating specific results, like in sales, but can create income instability and high-pressure environments. Enterprises use commissions to drive revenue and delegate clear authority for specific projects.
  • Committee: This is a group formed for discussion, governance, or oversight, often on an ongoing basis. It fosters collaborative decision-making but can be slower. Companies of all sizes use committees for strategic planning, risk management, or internal governance where diverse input is valued over speed.

Key Players and Stakeholders

In any commission-based system, several key players and stakeholders interact in a dynamic relationship. Their roles and motivations are interconnected, shaping the outcomes for both individuals and the organization as a whole.

  • Employees: Salespeople, recruiters, and agents whose income is directly tied to their performance.
  • Employers: Companies that design compensation structures to drive sales and manage payroll expenses.
  • Customers: The clients or buyers whose purchasing decisions ultimately trigger commission payments.

Impact and Implications

Commission-based pay structures have a significant impact on both employee behavior and company culture. While they can be powerful motivators for performance, they also carry potential downsides that can affect individuals and team dynamics.

  • Motivation: Directly links earnings to performance, driving sales and productivity.
  • Culture: Can foster a high-pressure, competitive environment that may lead to aggressive tactics.
  • Instability: Creates income volatility for employees, making financial planning more challenging.
  • Teamwork: May discourage collaboration and create resentment among colleagues if not structured carefully.
  • Costs: Aligns payroll expenses with revenue, making labor costs more variable and predictable.

Frequently Asked Questions about Commission

How is commission calculated?

It's typically a percentage of the sale value but can also be a flat fee or based on a tiered system. The exact formula is always outlined in your employment or commission agreement, which serves as the definitive guide for your compensation.

Are commissions legally considered wages?

Yes, in most jurisdictions, earned commissions are legally considered wages. Employers are required to pay them according to the agreed-upon schedule, even if the employee has since left the company. Always check your local labor laws for specifics.

What happens to my commission if a customer returns a product?

Most commission plans include a "clawback" clause. This allows the company to reclaim the commission if a sale is reversed due to a customer return or a canceled contract, usually within a specified timeframe detailed in your agreement.

Other terms

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Enterprise

An enterprise is a large-scale organization, often a corporation, defined by its complex structure and substantial number of employees.

Enterprise

Order Management

Order management is the end-to-end process of tracking customer orders from placement to fulfillment, ensuring a seamless customer experience.

Order Management

Buying Criteria

Buying criteria are the specific requirements and standards a customer uses to evaluate products or services before making a decision.

Buying Criteria

RESTful API

A RESTful API is a web service interface that uses HTTP requests to access and use data, adhering to the constraints of REST architecture.

RESTful API

Sales Objections

Sales objections are reasons or concerns raised by a potential customer as to why they are hesitant or unwilling to make a purchase.

Sales Objections

Enterprise Resource Planning

Enterprise Resource Planning (ERP) is a system of integrated software that businesses use to manage and automate their core day-to-day processes.

Enterprise Resource Planning

Persona-Based Marketing

Persona-based marketing uses fictional customer profiles, or personas, to create targeted messaging for specific audience segments.

Persona-Based Marketing

B2B Data

Learn about B2B data, including sources and types of B2B data, leveraging B2B data for sales success, & ensuring the accuracy of B2B data.

B2B Data

GPCTBA/C&I

GPCTBA/C&I is a sales qualification framework for understanding a prospect's goals, plans, challenges, timeline, budget, and authority.

GPCTBA/C&I

Warm Outreach

Warm outreach is contacting prospects with whom you have a pre-existing connection, like a mutual contact, making your message more personal and effective.

Warm Outreach

Sales Metrics

Sales metrics are quantifiable data points that track and measure a sales team's performance against specific goals and objectives.

Sales Metrics

Sales Lead

A sales lead is a potential customer—an individual or organization that has shown interest in your company's products or services.

Sales Lead

Product Recommendations

Product recommendations are a marketing strategy that uses customer data to suggest relevant products, boosting sales and customer engagement.

Product Recommendations

Affiliate Marketing

Affiliate marketing is a performance-based model where affiliates earn a commission for promoting another company’s products or services.

Affiliate Marketing

Outbound Lead Generation

Outbound lead generation means proactively reaching out to potential customers who haven't yet expressed interest to introduce them to your brand.

Outbound Lead Generation

Buying Intent

Buying intent is the collection of online cues and behaviors that signal a prospect is actively researching and moving toward a purchase decision.

Buying Intent

Landing Pages

A landing page is a standalone web page created for a marketing campaign. It’s where a visitor “lands” after clicking an ad or email link.

Landing Pages

NoSQL

NoSQL ("Not only SQL") databases offer a flexible alternative to relational models, excelling at managing large and unstructured data sets.

NoSQL

Cohort Analysis

Cohort analysis is a behavioral analytics tool that groups users with common traits to track their actions and engagement over time.

Cohort Analysis

Intent leads

Intent leads are prospects who show buying signals through their online actions, indicating they're actively looking to make a purchase.

Intent leads

GTM

A go-to-market (GTM) strategy is an action plan that outlines how a company will reach target customers and achieve a competitive advantage.

GTM

Talk Track

A talk track is a script that guides sales reps during calls. It ensures they cover key points and maintain a consistent message with prospects.

Talk Track

Lead Nurturing

Lead nurturing is the process of developing and reinforcing relationships with buyers at every stage of the sales funnel.

Lead Nurturing

Sales Workflows

Sales workflows are a set of automated actions that streamline the sales process, helping teams engage leads consistently and close deals faster.

Sales Workflows

Intent-Based Leads

Intent-based leads are potential customers whose online actions—like searches or content engagement—signal a clear interest in buying a solution.

Intent-Based Leads

Regression Testing

Regression testing ensures that new code changes don’t negatively impact existing features. It's a key step to maintain software quality after updates.

Regression Testing

Trigger Marketing

Trigger marketing uses customer actions or events to automatically send highly relevant, personalized messages at the perfect moment.

Trigger Marketing

Sales Calls

A sales call is a real-time conversation between a salesperson and a prospect, aiming to persuade them to purchase a product or service.

Sales Calls

LinkedIn Sales Navigator

LinkedIn Sales Navigator is a premium tool helping sales teams find and engage with the right leads and accounts on the LinkedIn network.

LinkedIn Sales Navigator

X-Sell

X-Sell, or cross-selling, is a sales strategy of selling additional, related products or services to an existing customer base.

X-Sell

Big Data

Learn about big data, including understanding big data characteristics, benefits of leveraging big data, & challenges in managing big data.

Big Data

Buyer Intent

Learn about buyer intent, including understanding buyer intent signals, strategies to capture buyer intent, & buyer intent vs. customer interest.

Buyer Intent

Site Retargeting

Site retargeting is a marketing strategy that shows ads to people who have previously visited your website but left without converting.

Site Retargeting

Persona Map

A persona map visually outlines a target customer, detailing their goals, behaviors, and pain points to help your team build genuine empathy.

Persona Map

Account-Based Marketing Software

Account-Based Marketing (ABM) software helps teams coordinate personalized marketing and sales efforts to land high-value customer accounts.

Account-Based Marketing Software

Lead Qualification Process

The lead qualification process is how you determine which prospects are most likely to become customers by evaluating them against specific criteria.

Lead Qualification Process

Closed Opportunities

Closed opportunities are potential deals that have concluded. They are categorized as either 'closed-won' (a sale was made) or 'closed-lost'.

Closed Opportunities

Feature Flags

Feature flags let you remotely control features in your app without new code. This enables safe testing, gradual rollouts, and quick rollbacks.

Feature Flags

Account-Based Everything

Account-Based Everything (ABE) is a strategy aligning sales, marketing, and success teams to focus on a specific set of high-value accounts.

Account-Based Everything

Digital Advertising

Digital advertising is the practice of delivering promotional content to users through various online and digital channels like social media or search engines.

Digital Advertising

Contact Discovery

Contact discovery is the process of finding accurate contact details for potential leads, including names, emails, phone numbers, and job titles.

Contact Discovery

Content Rights Management

Content Rights Management involves controlling the use and distribution of copyrighted digital media to protect intellectual property.

Content Rights Management

Request for Information

A Request for Information (RFI) is a formal process for gathering information from potential suppliers before issuing a more detailed proposal.

Request for Information

User Interface

A User Interface (UI) is the point where humans and computers interact. It encompasses all visual elements like screens, icons, and buttons.

User Interface

Dynamic Pricing

Dynamic pricing is a strategy where businesses set flexible prices for products or services based on current market demands and other factors.

Dynamic Pricing

Ramp Up Time

Ramp-up time is the period a new hire takes to get fully up to speed and become a productive member of your go-to-market team.

Ramp Up Time

Microservices

Microservices is an architecture where apps are built as a collection of small, independent services that communicate with each other over APIs.

Microservices

Ideal Customer Profile

An Ideal Customer Profile (ICP) is a detailed description of the perfect, hypothetical company that would get the most value from your product.

Ideal Customer Profile

Sales Prospecting Software

Sales prospecting software automates the process of finding, contacting, and tracking potential customers to help sales teams build their pipeline.

Sales Prospecting Software

Sales Acceleration

Sales acceleration refers to strategies and technologies designed to speed up the sales cycle, enabling reps to close more deals, faster.

Sales Acceleration

Closed Won

Closed Won is a CRM status for a sales deal that has been successfully concluded, resulting in a signed contract and a new customer.

Closed Won

Lead Routing

Lead routing is the automated process of distributing incoming leads to the right sales reps based on predefined criteria.

Lead Routing

Qualified Lead

A qualified lead is a prospect vetted as a good fit for your product. They match your ideal customer profile and show genuine interest.

Qualified Lead

Messaging Strategy

A messaging strategy defines what your brand says, how it says it, and where it says it to connect effectively with your target audience.

Messaging Strategy

Email Verification

Email verification is the process of confirming that an email address is valid and deliverable, which helps improve campaign performance.

Email Verification

Competitive Analysis

Competitive analysis means identifying your rivals and assessing their strategies to pinpoint your own business's strengths and weaknesses.

Competitive Analysis

Network Monitoring

Network monitoring is the continuous process of tracking a computer network's performance and health to detect and resolve issues proactively.

Network Monitoring

Precision Targeting

Precision targeting is a marketing strategy that uses data to identify and reach a highly specific audience most likely to convert.

Precision Targeting

Technographics

Technographics is data that outlines a company’s technology stack, helping B2B teams identify prospects based on the software and hardware they use.

Technographics

Knowledge Base

A knowledge base is a self-serve online library of information about a product, service, department, or topic.

Knowledge Base

Account-Based Selling

Account-Based Selling is a B2B strategy where sales and marketing treat high-value accounts as markets of one, using personalized outreach.

Account-Based Selling

Sales Coach

A sales coach is a mentor who trains and guides sales reps to enhance their skills, boost performance, and ultimately close more deals effectively.

Sales Coach

B2B Marketing Attribution

Learn about B2B marketing attribution, including challenges in B2B marketing attribution, & key metrics for effective attribution.

B2B Marketing Attribution

Account Executive

An Account Executive (AE) is a sales professional responsible for closing new business deals and managing existing client relationships to drive revenue.

Account Executive

Demand Generation

Demand generation is the process of creating awareness and interest in your products to build a pipeline of qualified leads for your sales team.

Demand Generation

GDPR Compliance

GDPR compliance means following the EU's strict data protection laws to ensure the secure and lawful handling of personal data.

GDPR Compliance

Buyer Intent Data

Learn about buyer intent data, including sourcing and interpreting buyer intent data, & key metrics in buyer intent analysis.

Buyer Intent Data

CRM Enrichment

CRM enrichment is the process of adding third-party data to your existing customer profiles to make them more complete and accurate.

CRM Enrichment

No Cold Calls

No Cold Calls is a sales strategy that replaces unsolicited calls with warm outreach to prospects who have already demonstrated interest.

No Cold Calls

Marketing Qualified Lead (MQL)

A Marketing Qualified Lead (MQL) is a prospect who has shown interest based on marketing efforts but isn't yet ready for a sales conversation.

Marketing Qualified Lead (MQL)

Objection Handling in Sales

Objection handling in sales is the process of responding to a prospect's concerns about a product or service to move the deal forward.

Objection Handling in Sales

Sales Development Representative (SDR)

A Sales Development Representative (SDR) is a sales specialist who finds and qualifies new leads, building a pipeline for the sales team.

Sales Development Representative (SDR)

Process Builder

Process Builder is a Salesforce automation tool that lets you create 'if/then' business processes with a user-friendly visual interface.

Process Builder

B2B Intent Data Providers

Learn about B2B intent data providers, including evaluating intent data quality, leveraging intent data for growth, & B2B intent data: key providers comparison.

B2B Intent Data Providers

Cold Emailing

Cold emailing is sending unsolicited emails to potential customers you haven't contacted before, aiming to start a business conversation.

Cold Emailing

Sales Territory

A sales territory is a specific group of customers or a geographic area that a salesperson or sales team is responsible for managing.

Sales Territory

Chatbots

Chatbots are AI-powered programs that simulate human conversation. They interact with users via text or voice, typically for customer support.

Chatbots

Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue (MRR) is the predictable, recurring income a business expects to receive each month from all active subscriptions.

Monthly Recurring Revenue (MRR)

Data Security

Data security protects digital information from unauthorized access, corruption, or theft throughout its entire lifecycle.

Data Security

Website Visitor Tracking

Website visitor tracking collects and analyzes data on user behavior to understand their journey and improve the overall user experience.

Website Visitor Tracking

Customer Retention

Customer retention refers to the strategies and activities a company uses to prevent customer churn and encourage them to continue buying.

Customer Retention

Account-Based Sales Development

Account-Based Sales Development (ABSD) is a focused strategy where SDRs target key stakeholders within specific, high-value accounts.

Account-Based Sales Development

Social Proof

Social proof is a psychological phenomenon where people assume the actions of others reflect correct behavior for a given situation.

Social Proof

Custom API integration

A custom API integration is a bespoke connection between software, enabling them to communicate and share data to meet unique business requirements.

Custom API integration

API

An API (Application Programming Interface) is a software intermediary that allows two applications to talk to each other and exchange information.

API

Email Personalization

Email personalization uses subscriber data—like their name, interests, or past behavior—to create highly relevant and targeted email campaigns.

Email Personalization

Outbound Sales

Outbound sales is when reps proactively contact potential customers through cold calls or emails to generate leads and build a sales pipeline.

Outbound Sales

Customer Buying Signals

Customer buying signals are the actions, behaviors, or statements a prospect makes that indicate they are moving towards a purchase decision.

Customer Buying Signals

Marketo

Marketo is a marketing automation platform used by B2B marketers to manage lead generation, nurturing, email marketing, and analytics.

Marketo

Sales Engineer

Sales Engineers blend deep technical knowledge with sales acumen, demonstrating a product's value and solving customer problems to drive revenue.

Sales Engineer

Gamification

Gamification applies game mechanics like points, badges, and leaderboards to non-game activities to boost engagement and motivate users.

Gamification

Video Selling

Video selling uses personalized video messages to engage prospects, build rapport, and guide them through the sales funnel to close more deals.

Video Selling

AI Data Enrichment

AI data enrichment uses artificial intelligence to automatically enhance and update raw data, making it more complete, accurate, and valuable.

AI Data Enrichment

Marketing Automation Platform

A marketing automation platform is software that automates marketing actions. It helps manage tasks like email campaigns and lead nurturing.

Marketing Automation Platform

AI Sales Script Generator

An AI sales script generator is a tool that uses artificial intelligence to create personalized sales scripts for any outreach scenario.

AI Sales Script Generator

Warm Outbound

Warm outbound is a sales strategy for contacting prospects who've shown interest in your brand through prior engagement, like website visits.

Warm Outbound

Letter of Intent

A Letter of Intent (LOI) is a document declaring the preliminary commitment of one party to do business with another, outlining the chief terms.

Letter of Intent

Key Accounts

Key accounts are a company's most valuable customers, vital due to their significant revenue contribution and strategic importance for growth.

Key Accounts

Average Revenue per User

Average Revenue per User (ARPU) is a key performance indicator that calculates the average revenue generated from each user or subscriber.

Average Revenue per User

Buying Signal

A buying signal is any action from a prospect that indicates they are interested in making a purchase, helping sales teams prioritize leads.

Buying Signal