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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SAM

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

SAM

Analytics Platforms

Analytics platforms are tools that collect and analyze data from various sources, helping businesses track key metrics and make informed decisions.

Analytics Platforms

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

Digital Sales Room

A Digital Sales Room is a private online space where sellers share all relevant content with buyers to streamline the sales cycle.

Digital Sales Room

Account

An account is a company or organization that you're targeting for sales. It can be a prospective, current, or even a past customer.

Account

Lookalike Audiences

Lookalike audiences are groups of potential customers who share similar characteristics and behaviors with your existing, high-value customers.

Lookalike Audiences

Buyer

Learn about buyer, including identifying your ideal buyer, understanding buyer's journey, & evaluating buyer decision processes.

Buyer

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

Dynamic Data

Dynamic data is information that updates in real-time. Unlike static data, it reflects the most current state of information automatically.

Dynamic Data

Sales Metrics

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

Sales Metrics

B2B Sales Channels

Learn about B2B sales channels, including types of B2B sales channels, strategies for effective channel selection, & integrating technology in B2B sales.

B2B Sales Channels

Key Performance Indicators

Key Performance Indicators (KPIs) are measurable values that demonstrate how effectively a company is achieving its key business objectives.

Key Performance Indicators

Sales Demonstration

A sales demonstration is a presentation showing a prospect how a product or service works and how it can solve their specific problems.

Sales Demonstration

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

Platform as a Service

Platform as a Service (PaaS) is a cloud model where a provider delivers a platform for users to develop, run, and manage applications online.

Platform as a Service

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

B2B Marketing Analytics

Learn about B2B marketing analytics, including key components of B2B marketing analytics, & getting started with B2B marketing analytics.

B2B Marketing Analytics

Sales Forecast

A sales forecast is a projection of future sales revenue. It's a crucial tool for businesses to make informed decisions and allocate resources.

Sales Forecast

Email Deliverability

Email deliverability is the ability for your emails to successfully land in your recipients' inboxes instead of their spam folders.

Email Deliverability

Tokenization

Tokenization is the process of breaking down text into smaller units called tokens, such as words or characters, for AI to process.

Tokenization

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

User Testing

User testing involves observing real users interact with a product to identify usability issues and improve the overall user experience.

User Testing

Direct Mail

Direct mail is a marketing method where businesses send physical promotional materials directly to potential customers' mailboxes.

Direct Mail

Sales Enablement Platform

A sales enablement platform centralizes content, training, and analytics to help sales teams engage buyers and effectively close deals.

Sales Enablement Platform

B2B Data Solutions

Learn about B2B data solutions, including unlocking the power of B2B data, & key components of effective B2B data solutions.

B2B Data Solutions

Firmographics

Firmographics are descriptive attributes of organizations, used to segment companies by characteristics like industry, size, and location.

Firmographics

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

Cross-Site Scripting

Cross-Site Scripting (XSS) is a web security vulnerability that allows attackers to inject malicious scripts into trusted websites.

Cross-Site Scripting

Subject Matter Expert

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

Subject Matter Expert

Brand Awareness

Learn about brand awareness, including understanding its importance, building an effective strategy, key metrics to track, & examples in the real world.

Brand Awareness

Intent Data

Intent data tracks a user's online behavior—like searches and site visits—to identify signals that they are ready to make a purchase.

Intent Data

Data Mining

Data mining is the process of discovering patterns, trends, and useful information from large datasets to make better business decisions.

Data Mining

Corporate Identity

Corporate identity is the visual and verbal persona of a company, encompassing its logo, color palette, communication style, and core values.

Corporate Identity

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

Email Verification

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

Email Verification

Value Gap

A value gap is the difference between the value a customer expects from a product and the actual value they receive, often leading to churn.

Value Gap

Proof of Concept

A Proof of Concept (PoC) is a small exercise to test whether a business idea or project is technically feasible and has real-world potential.

Proof of Concept

Sales Velocity

Sales velocity is a key metric measuring the speed at which your company makes money. It shows how fast deals move through your sales pipeline.

Sales Velocity

Data Enrichment

Data enrichment is the process of enhancing raw data by adding missing information from other sources, making it more complete and actionable.

Data Enrichment

Break-Even

Learn about break-even, including calculating your break-even point, importance of break-even analysis, & break-even analysis vs. profit margins.

Break-Even

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

B2B2C

Learn about B2B2C, including benefits of B2B2C model, key strategies for B2B2C success, & B2B2C vs. B2C vs. B2B: understanding the differences.

B2B2C

Knowledge Base

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

Knowledge Base

DMP

A Data Management Platform (DMP) is a tech platform used to collect and manage data, mainly for digital marketing and advertising campaigns.

DMP

Marketing Performance

Marketing performance is the process of measuring a campaign's effectiveness against set goals using key metrics like ROI and conversion rates.

Marketing Performance

Cold Email

A cold email is an initial outreach sent to a potential customer with whom you've had no prior contact, aiming to introduce your business.

Cold Email

Buyer Intent Data

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

Buyer Intent Data

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

Sales Kickoff

A sales kickoff (SKO) is an annual event for a sales team to celebrate wins, align on goals, and get motivated for the upcoming year.

Sales Kickoff

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

Customer Success

Customer Success is a business strategy focused on proactively helping customers achieve their goals with your product or service.

Customer Success

Hadoop

Hadoop is an open-source framework designed for the distributed storage and processing of extremely large data sets across clusters of computers.

Hadoop

Brand Equity

Learn about brand equity, including understanding its importance, building strong brand equity, measuring brand equity, & real-world applications.

Brand Equity

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

Virtual Selling

Virtual selling is the process of selling to customers remotely using technology like video calls, rather than meeting them in person.

Virtual Selling

Sales Qualified Lead

A Sales Qualified Lead (SQL) is a prospect vetted by marketing and sales, deemed ready for a direct sales pitch after showing intent to buy.

Sales Qualified Lead

Funnel Optimization

Funnel optimization is the process of improving each stage of the customer journey to maximize conversions and drive revenue growth.

Funnel Optimization

Low-Hanging Fruit

Low-hanging fruit are the most obvious and easy-to-tackle tasks or goals that provide a quick, valuable return for minimal effort.

Low-Hanging Fruit

High Availability

High availability (HA) describes a system's capacity to function continuously with minimal downtime, ensuring consistent operational performance.

High Availability

Competitive Analysis

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

Competitive Analysis

Browser Compatibility

Learn about browser compatibility, including understanding the importance, common challenges, best practices, & tools for testing.

Browser Compatibility

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)

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

C-Level or C-Suite

The C-suite, or C-level, refers to a company's most senior executives. Their titles usually start with 'Chief,' such as CEO, CFO, or CTO.

C-Level or C-Suite

White Label

White labeling is when a company puts its own branding on a product or service that was actually produced by a different company.

White Label

Revenue Intelligence

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

Revenue Intelligence

Voice Broadcasting

Voice broadcasting is an automated system that delivers a pre-recorded voice message to a large list of phone numbers simultaneously.

Voice Broadcasting

Account-Based Marketing Benchmarks

Account-Based Marketing (ABM) benchmarks are key metrics used to measure the performance and success of your targeted account strategies.

Account-Based Marketing Benchmarks

CCPA Compliance

CCPA compliance is adhering to the California Consumer Privacy Act, a law that grants consumers more control over their personal data.

CCPA Compliance

Enrichment

Enrichment is the process of adding third-party data to your existing customer profiles to get a more complete picture of your leads.

Enrichment

Video Email

Video email involves embedding a short video directly into an email. This lets recipients watch your message without leaving their inbox.

Video Email

Soft Sell

A soft sell is a low-pressure sales tactic that uses subtle persuasion and relationship-building to gently guide customers toward a purchase.

Soft Sell

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

Ransomware

Ransomware is a type of malicious software that encrypts a victim's files, holding them hostage until a ransom is paid for the decryption key.

Ransomware

B2B Leads

Learn about B2B leads, including identifying quality B2B leads, generating B2B leads effectively, & B2B leads vs. B2C leads: understanding the differences.

B2B Leads

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)

Multi-threading

Multi-threading allows a single CPU core to run multiple independent threads (or tasks) at the same time, boosting efficiency and performance.

Multi-threading

Purchase Buying Stage

The purchase stage is when a buyer has decided on a solution and is ready to buy. They're comparing vendors to make a final choice.

Purchase Buying Stage

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

Unit Economics

Unit economics are the direct revenues and costs of a business calculated on a per-unit basis, revealing its fundamental profitability.

Unit Economics

Regression Analysis

Regression analysis is a statistical method for estimating the relationships between a dependent variable and one or more independent variables.

Regression Analysis

Marketing Funnel

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

Marketing Funnel

Docker

Docker is a tool that packages applications and their dependencies into isolated environments called containers for easy deployment and scaling.

Docker

Win/Loss Analysis

Win/Loss Analysis is the process of systematically tracking and analyzing the reasons why you win or lose deals with prospective customers.

Win/Loss Analysis

Touches

Touches are the individual interactions you have with a prospect throughout the sales process, from emails and calls to social media messages.

Touches

Agile Methodology

Agile methodology is an iterative approach to project management and software development, focusing on delivering value in small, incremental steps.

Agile Methodology

CRM Data

CRM data is the information businesses use to manage customer relationships. It covers contact details, purchase history, and communication logs.

CRM Data

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

Follow-up

A follow-up is a communication sent after an initial interaction to continue the conversation, provide more value, or prompt a response.

Follow-up

Functional Testing

Functional testing verifies that software performs its intended functions as specified in the requirements, ensuring it works as users expect.

Functional Testing

HubSpot

HubSpot is a customer relationship management (CRM) platform with tools for marketing, sales, and service, all aimed at helping businesses grow.

HubSpot

Sales Funnel

A sales funnel is a model illustrating the customer's journey from initial awareness to the final purchase, narrowing down leads at each stage.

Sales Funnel

Stress Testing

Stress testing is a type of software testing that determines a system's robustness by pushing it beyond its normal operational capacity.

Stress Testing

Target Buying Stage

The Target Buying Stage identifies a prospect's position in the buying journey, from initial awareness to the final decision to purchase.

Target Buying Stage

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

Return on Investment (ROI)

Return on Investment (ROI) is a key performance metric that measures the profitability of an investment relative to its initial cost.

Return on Investment (ROI)

Headless CMS

A headless CMS is a back-end content repository that delivers content via API to any front-end, decoupling the content from its presentation layer.

Headless CMS

Sales Process

A sales process is a structured set of steps that a sales team follows to move a prospect from an initial lead to a closed customer.

Sales Process

Value Statement

A value statement is a clear, concise declaration of the unique benefits a company provides to its customers, outlining its core purpose.

Value Statement

Cross-Selling

Cross-selling is a sales tactic of encouraging customers to purchase products or services that are related to what they're already buying.

Cross-Selling