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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Quality Assurance

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Average Order Value

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Average Order Value

Business Continuity

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Virtual Selling

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LinkedIn Sales Navigator

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LinkedIn Sales Navigator

Marketing Operations

Marketing Operations (MOps) is the engine of a marketing team, managing the technology, processes, and people to run campaigns effectively.

Marketing Operations

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

Marketing Attribution Model

A marketing attribution model is a framework for assigning credit to the marketing touchpoints that lead a customer to convert.

Marketing Attribution Model

Escalations

Escalations are the process of moving a customer issue or sales opportunity to a more senior or specialized team member for resolution.

Escalations

On Target Earnings

On-Target Earnings (OTE) is a salesperson's total potential pay, combining base salary and commission for hitting their sales quota.

On Target Earnings

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

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)

Buyer Intent Data

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

Buyer Intent Data

Data-Driven Lead Generation

Data-driven lead generation is the process of using data insights to identify, attract, and convert high-quality leads into customers.

Data-Driven Lead Generation

Product-Led Growth

Product-Led Growth (PLG) is a business strategy where the product itself drives user acquisition, conversion, and expansion.

Product-Led Growth

Click-Through Rate

Click-through rate (CTR) is a metric that measures the percentage of people who click on a specific link, ad, or call-to-action.

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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

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)

Sales Operations Analytics

Sales operations analytics is the practice of analyzing sales data to improve the efficiency and effectiveness of the entire sales process.

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Sales Territory Planning

Sales territory planning is the process of dividing customers into geographic areas to be assigned to specific sales reps or teams.

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Revenue Intelligence

Revenue intelligence is the process of collecting and analyzing customer data to provide insights that help sales teams make smarter decisions.

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B2B Marketing KPIs

Learn about B2B marketing KPIs, including identifying key B2B marketing KPIs, setting achievable KPI targets, B2B vs B2C marketing KPIs: understanding the differences.

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Real-time Data Processing

Real-time data processing is the method of analyzing data the instant it's generated, enabling immediate actions and decision-making.

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B2B Intent Data Providers

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CPM

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Targeted Marketing

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Targeted Marketing

Buying Signal

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Search Engine Results Page

A Search Engine Results Page (SERP) is the page displayed by a search engine after a user enters a query, listing results ranked by relevance.

Search Engine Results Page

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

Branded Keywords

Learn about branded keywords, including identifying your branded keywords, & strategies for optimizing branded keywords.

Branded Keywords

Persona

A persona is a semi-fictional profile of your ideal customer, based on market research and real data about your existing customers.

Persona

80/20 Rule

The 80/20 rule, or Pareto Principle, posits that 80% of results come from just 20% of the effort. It's a key concept for prioritization.

80/20 Rule

Firewall

A firewall is a digital barrier that protects a network by monitoring and controlling traffic, blocking unauthorized access and malicious content.

Firewall

Buyer Journey

The buyer journey maps the path a potential customer takes, from first learning about a product to the final decision to buy.

Buyer Journey

Sales Cycle

A sales cycle is the series of steps a company takes to close a new customer. It starts with prospecting and ends with a signed deal.

Sales Cycle

B2B Sales

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B2B Sales

Direct Sales

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Sales Pipeline Velocity Formula

The sales pipeline velocity formula is a key metric that measures how quickly deals move through your pipeline and turn into revenue.

Sales Pipeline Velocity Formula

Account Match Rate

Account match rate is the percentage of target accounts successfully identified and matched against a specific database or data provider.

Account Match Rate

Field Sales Rep

A field sales representative, or outside sales rep, travels to meet prospects in person, selling products or services directly within their territory.

Field Sales Rep

Persona-Based Marketing

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

Persona-Based Marketing

Video Selling

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

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Customer Data Analysis

Customer data analysis is the process of examining customer information to uncover insights that drive business decisions and improve experiences.

Customer Data Analysis

End of Quarter

“End of Quarter” (EOQ) refers to the final weeks of a business quarter when sales teams rush to meet quotas, often leading to a flurry of deals.

End of Quarter

Personalization in Sales

Personalization in sales means tailoring outreach to a prospect's specific needs, interests, and context to make communication more relevant.

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Below the Line

Learn about below the line, including key strategies for below the line marketing, & distinguishing above and below the line tactics.

Below the Line

Break-Even

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Break-Even

Kanban

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Kanban

Bad Leads

Learn about bad leads, including identifying bad leads, warning signs of bad leads, impact of bad leads on sales, & strategies to minimize bad leads.

Bad Leads

Marketing Qualified Account

A Marketing Qualified Account (MQA) is a target company that has shown significant engagement, indicating it's ready for the sales team to pursue.

Marketing Qualified Account

Hybrid Sales Model

A hybrid sales model blends traditional and digital sales methods to engage customers across multiple channels and buying preferences.

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Customer Journey Mapping

Customer journey mapping is the process of creating a visual story of your customers' interactions with your brand across all touchpoints.

Customer Journey Mapping

Referral Marketing

Referral marketing is a strategy that incentivizes existing customers to recommend a company's products or services to their personal network.

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Sales Automation

Sales automation uses software to streamline and automate repetitive, manual sales tasks, freeing up reps to focus on selling.

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Outside Sales

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Retargeting Marketing

Retargeting marketing is a digital advertising strategy that targets users who have previously interacted with your website or brand online.

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Horizontal Market

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Account-Based Sales

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Marketing Funnel

The marketing funnel is a model illustrating the path potential customers take, from initial awareness to making a purchase.

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Brand Awareness

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Ballpark

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No Forms

No Forms is a method for capturing lead data directly from your website visitors' profiles without requiring them to fill out any forms.

No Forms

Data Security

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

Data Security

Day Sales Outstanding

Day Sales Outstanding (DSO) is a financial ratio that shows the average number of days it takes for a company to receive payment for a sale.

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Virtual Private Cloud

A Virtual Private Cloud (VPC) is a secure, isolated section of a public cloud. It lets you provision your own logically isolated resources.

Virtual Private Cloud

SAM

Serviceable Addressable Market (SAM) is the portion of the market your business can realistically serve with its current products and sales channels.

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Fault Tolerance

Fault tolerance is a system's ability to continue operating without interruption when one or more of its components fail.

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Subject Matter Expert

A Subject Matter Expert (SME) is an individual with profound knowledge and authority in a particular area, topic, or industry.

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Awareness Buying Stage

The awareness stage is the first step in the buyer's journey, where a potential customer realizes they have a problem or an opportunity to explore.

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Economic Order Quantity

Economic Order Quantity (EOQ) is the ideal order quantity a company should purchase to minimize its total inventory-related costs.

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Customer Data Platform (CDP)

A Customer Data Platform (CDP) centralizes customer data from all sources to create a complete, unified profile for each individual customer.

Customer Data Platform (CDP)

Account-Based Advertising

Account-based advertising is a hyper-focused B2B strategy that targets key accounts with personalized ads across multiple channels.

Account-Based Advertising

Consultative Sales

Consultative selling is a sales approach where a salesperson acts as an advisor, focusing on understanding and solving a customer's specific needs.

Consultative Sales

Objection Handling

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

Objection Handling

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

Sales and Marketing Analytics

Sales and marketing analytics involves measuring and analyzing performance data to maximize effectiveness and optimize return on investment (ROI).

Sales and Marketing Analytics

Video Messaging

Video messaging involves sending short, personalized video clips to prospects or customers, replacing traditional text-based communication.

Video Messaging

Sales Compensation

Sales compensation is the total pay a salesperson receives, including salary, commissions, and bonuses, structured to motivate performance.

Sales Compensation

Segmentation Analysis

Segmentation analysis is the process of dividing a broad market into smaller, distinct groups of consumers with similar needs or characteristics.

Segmentation Analysis

Lead Generation Software

Lead generation software helps businesses automate finding and capturing potential customers' contact information to build sales pipelines.

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Marketo

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

Marketo

Social Selling

Social selling is the art of using social media to find, connect with, build relationships with, and nurture sales prospects.

Social Selling

Inside Sales Rep

An inside sales rep sells products or services remotely from an office, using digital tools like phone and email to connect with customers.

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Bulk Application Programming Interface

Learn about bulk API, including how it works, the advantages of using it, common use cases, and tips for optimizing it.

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Data Pipelines

A data pipeline is a set of automated processes that move raw data from various sources to a destination for storage and analysis.

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Call Disposition

Call disposition is the process of labeling the outcome of a call. It helps sales teams track interactions and plan their next steps effectively.

Call Disposition

Churn

Churn, also known as customer attrition, is the rate at which customers stop doing business with a company over a given period.

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Performance Monitoring

Performance monitoring involves collecting and analyzing data to track a system's operational health and efficiency, ensuring it meets set standards.

Performance Monitoring

Account Development Representative

An Account Development Representative (ADR) identifies and qualifies new business opportunities, creating a pipeline for account executives.

Account Development Representative

Hard Sell

A hard sell is an aggressive sales technique that uses high-pressure tactics to push a customer into making an immediate purchase decision.

Hard Sell

Price Optimization

Price optimization is the process of finding the ideal price for a product or service to maximize profitability or other business objectives.

Price Optimization

Dynamic Segment

Dynamic segments are self-updating lists that group contacts based on real-time data, ensuring your outreach is always timely and relevant.

Dynamic Segment

Weighted Pipeline

A weighted pipeline forecasts sales revenue by assigning a closing probability to each deal based on its stage in the sales funnel.

Weighted Pipeline

Subscription Models

Subscription models are a business strategy where customers pay a recurring fee at regular intervals for access to a product or service.

Subscription Models

Positioning Statement

A positioning statement is a concise description of your target market and how your product or service uniquely fills their needs.

Positioning Statement

A/B Testing

A/B testing is a method of comparing two versions of something, like a webpage or email, to determine which one performs better with your audience.

A/B Testing

Content Delivery Network

A Content Delivery Network (CDN) is a system of distributed servers that deliver web content to users based on their geographic location.

Content Delivery Network

Sales Script

A sales script is a pre-written guide of talking points that helps salespeople navigate conversations with potential customers.

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Trusted Advisor

A trusted advisor is an expert who builds a deep client relationship by consistently prioritizing their best interests over any single transaction.

Trusted Advisor

Drupal

Drupal is a free, open-source content management system (CMS) for building websites and applications. It's known for its robust flexibility.

Drupal