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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ClickFunnels

ClickFunnels is a popular online tool that lets entrepreneurs easily build sales funnels to guide potential customers through the buying process.

ClickFunnels

Accessibility Testing

Accessibility testing is a software testing method that verifies an application is usable by people with disabilities, like vision or hearing loss.

Accessibility Testing

Gone Dark

Going dark is when a once-responsive prospect suddenly stops all communication, leaving you wondering what went wrong.

Gone Dark

Sales Intelligence

Sales intelligence is technology that gathers and analyzes data to help salespeople find and understand prospects and existing clients.

Sales Intelligence

Marketing Attribution

Marketing attribution is the process of identifying which touchpoints contribute to a conversion and assigning value to each of them.

Marketing Attribution

Operational CRM

An Operational CRM is a system that automates and improves customer-facing business processes like sales, marketing, and customer service.

Operational CRM

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

Performance Plan

A performance plan is a formal document outlining an employee's goals, expectations, and metrics for success over a specific period.

Performance Plan

Challenger Sales

The Challenger Sales model is a methodology where reps teach prospects, tailor their pitch, and take control of the sales conversation.

Challenger Sales

HubSpot

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

HubSpot

Lead Response Time

Lead response time is the duration between a potential customer showing interest and your team's first point of contact with them.

Lead Response Time

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

FAB Technique

The FAB technique is a sales framework connecting product features to advantages and then to the specific benefits for the customer.

FAB Technique

Interactive Voice Response

Interactive Voice Response (IVR) is an automated phone system that uses voice and keypad inputs to interact with callers and route their calls.

Interactive Voice Response

Pipeline Management

Pipeline management is the process of tracking and managing potential customers as they move through the different stages of your sales process.

Pipeline Management

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

Closed Question

A closed question is a type of query that elicits a simple, often one-word answer like 'yes' or 'no,' or a specific, factual response.

Closed Question

PPC

Pay-per-click (PPC) is an internet advertising model where businesses pay a fee each time one of their online ads is clicked by a user.

PPC

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

Renewal Rate

Renewal rate is the percentage of customers who renew their subscriptions or contracts at the end of their service period.

Renewal Rate

Buyer Intent Data

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

Buyer Intent Data

Copyright Compliance

Copyright compliance is adhering to laws that protect creative works. It involves legally using content by obtaining permission or licenses.

Copyright Compliance

Channel Partner

A channel partner is a company that works with a manufacturer or producer to market and sell their products, software, or services to customers.

Channel Partner

Page Views

Page views count the total number of times a page on your website is loaded. This metric is a key indicator of your site's overall traffic.

Page Views

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 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

Marketing Operations

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

Marketing Operations

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

CSS

CSS, or Cascading Style Sheets, is the code that styles a website. It controls the colors, fonts, layout, and overall look of a web page.

CSS

Customer Success

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

Customer Success

Weighted Sales Pipeline

A weighted sales pipeline forecasts revenue by assigning a closing probability to each deal, giving a more accurate picture of potential income.

Weighted Sales Pipeline

Yield Management

Yield management is a dynamic pricing strategy that adjusts prices based on demand to maximize revenue from a fixed, perishable inventory.

Yield Management

CRM Integration

CRM integration connects your CRM software with other tools, creating a unified system for all your customer data and business processes.

CRM Integration

Accounts Payable

Accounts Payable (AP) is the money a company owes its suppliers for goods or services bought on credit. It's listed as a current liability.

Accounts Payable

HTTP Requests

An HTTP request is a message sent by a client, like a web browser, to a server to ask for a resource, such as a web page or an image.

HTTP Requests

Customer Churn Rate

Customer churn rate is the percentage of subscribers or customers who cancel their service with a company during a given time frame.

Customer Churn Rate

Scrum

Scrum is an agile framework that helps teams structure and manage their work through a set of values, principles, and practices.

Scrum

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

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

SEO

SEO, or Search Engine Optimization, is increasing the quantity and quality of traffic to your website through organic search results.

SEO

After-Sales Service

After-sales service is the support provided to customers after they've purchased a product. It includes things like warranties, training, or repairs.

After-Sales Service

Cost Per Click (CPC)

Cost Per Click (CPC) is a digital advertising model where an advertiser pays a fee each time one of their ads gets clicked by a user.

Cost Per Click (CPC)

Statement of Work

A Statement of Work (SoW) is a document that outlines a project's scope, deliverables, and timeline. It acts as a contract between parties.

Statement of Work

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

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

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

Inbound Lead Generation

Inbound lead generation is the process of attracting potential customers to your business with valuable content and tailored experiences.

Inbound Lead Generation

Latency

Latency is the delay between a user's action and a system's response. It's the time it takes for a data packet to travel to its destination.

Latency

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

Cybersecurity

Cybersecurity is the practice of protecting computer systems, networks, and data from digital attacks, theft, and unauthorized access.

Cybersecurity

Video Hosting

Video hosting is a service that allows users to upload, store, and share video content online, making it accessible for playback anywhere.

Video Hosting

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

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)

Firmographic Data

Firmographic data is information used to classify firms. It includes attributes like industry, employee count, location, and annual revenue.

Firmographic Data

Vertical Market

A vertical market is a niche where businesses cater to a specific industry or group of customers with specialized needs, not the mass market.

Vertical Market

Economic Order Quantity

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

Economic Order Quantity

No Spam

“No Spam” is a commitment to sending only relevant, solicited messages. It means avoiding bulk, unwanted emails to respect the recipient's inbox.

No Spam

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

Jobs to Be Done Framework

The Jobs to Be Done (JTBD) framework focuses on understanding customer needs by identifying the specific 'job' they are trying to accomplish.

Jobs to Be Done Framework

Data Security

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

Data Security

Sales Dashboard

A sales dashboard is a visual tool that centralizes and displays key sales data, metrics, and KPIs to help teams track performance and goals.

Sales Dashboard

Sales Territory Planning

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

Sales Territory Planning

Electronic Signatures

An electronic signature is a digital method for getting consent on electronic documents. It's a legally binding way to sign agreements online.

Electronic Signatures

Social Proof

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

Social Proof

ABM Orchestration

ABM orchestration aligns marketing and sales actions across channels to deliver seamless, personalized experiences to high-value accounts.

ABM Orchestration

Objection

An objection is an explicit expression by a prospect that presents a barrier to moving forward in the sales process.

Objection

Dynamic Territories

Dynamic territories are fluid sales assignments that adjust based on real-time data, ensuring reps can focus on the highest-value accounts.

Dynamic Territories

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

Trade Shows

Trade shows are events where companies in a specific industry showcase their latest products and services to find new customers and partners.

Trade Shows

Sales Champion

A sales champion is your internal advocate at a target company. They believe in your product and help you push the deal forward to close.

Sales Champion

Buyer's Journey

The buyer's journey maps the path a potential customer takes, from first becoming aware of a problem to making a final purchase decision.

Buyer's Journey

Dark Funnel

The Dark Funnel describes customer buying activities that are untrackable by companies, such as private chats and word-of-mouth referrals.

Dark Funnel

Always Be Closing

“Always Be Closing” (ABC) is a sales mantra meaning every action a salesperson takes should be with the ultimate goal of closing the sale.

Always Be Closing

Voice Search Optimization

Voice search optimization is the process of optimizing your content, SEO, and online listings to appear in and rank for voice-based searches.

Voice Search Optimization

Supply Chain Management

Supply Chain Management oversees the entire production flow of a good or service, from raw materials to final delivery to the consumer.

Supply Chain Management

Consultative Selling

Consultative selling is an approach where salespeople act as expert advisors, diagnosing customer needs to provide the most suitable solutions.

Consultative Selling

Net Promoter Score

Net Promoter Score (NPS) is a metric measuring customer loyalty by asking how likely they are to recommend your company or product to others.

Net Promoter Score

B2B Data Erosion

Learn about B2B data erosion, including causes of B2B data decay, strategies to combat data erosion, & measuring the impact of data erosion.

B2B Data Erosion

Sales Key Performance Indicators

Sales Key Performance Indicators (KPIs) are quantifiable metrics used to measure how effectively a sales team is achieving its key objectives.

Sales Key Performance Indicators

BAB Formula

Learn about BAB formula, including implementing BAB in sales strategies, crafting an effective BAB pitch, & comparing BAB with other sales frameworks.

BAB Formula

ETL

ETL, short for Extract, Transform, Load, is a data integration process for moving raw data from various sources to a central data warehouse.

ETL

Lookalike Audiences

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

Lookalike Audiences

Value-Added Reseller

A Value-Added Reseller (VAR) is a company that adds features or services to an existing product, then resells it as an integrated solution.

Value-Added Reseller

Nurture

Nurture is the process of building relationships with potential customers, guiding them through the sales funnel with personalized communication.

Nurture

Sales Prospecting Techniques

Sales prospecting techniques are methods used by sales teams to identify, contact, and qualify potential customers, also known as prospects.

Sales Prospecting Techniques

Load Balancing

Load balancing is the practice of distributing incoming network traffic across a group of backend servers, ensuring no single server is overworked.

Load Balancing

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

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

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

Prospecting

Prospecting is the process of identifying potential customers, or prospects, to build a sales pipeline and generate new business opportunities.

Prospecting

Sales Funnel Metrics

Sales funnel metrics are key data points that track how effectively you're moving potential customers from awareness to a final purchase.

Sales Funnel Metrics

Data Management Platform

A Data Management Platform (DMP) is a software that collects and organizes audience data from various sources for targeted marketing efforts.

Data Management Platform

Load Testing

Load testing is a type of performance testing that determines how a system behaves under both normal and anticipated peak load conditions.

Load Testing

Customer Loyalty

Customer loyalty is a customer’s devotion to a brand, shown by their repeat purchases and engagement, driven by positive experiences and trust.

Customer Loyalty

System of Record

A System of Record (SoR) is the authoritative data source for a specific type of data. It acts as the single source of truth for an organization.

System of Record

Marketing Play

A marketing play is a repeatable tactic used to achieve a specific marketing goal, like generating leads or driving engagement.

Marketing Play

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

Consideration Buying Stage

The consideration buying stage is where potential customers have defined their problem and are now actively researching and evaluating solutions.

Consideration Buying Stage

Account Development Representative

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

Account Development Representative

Sales Operations Management

Sales Operations Management streamlines sales processes, tech, and data analysis to help sales teams sell more effectively and efficiently.

Sales Operations Management