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

Oops! Something went wrong while submitting the form.
00 items

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

Shipping Solutions

Shipping solutions are services or software that streamline the logistics of getting products to customers, from label printing to final delivery.

Shipping Solutions

Lead Scoring

Lead scoring is the process of assigning points to leads based on their attributes and actions to determine their sales-readiness.

Lead Scoring

B2B Sales

Learn about B2B sales, including key strategies for B2B success, types of B2B sales models, & B2B vs. B2C sales: understanding the differences.

B2B Sales

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

Trigger Marketing

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

Trigger Marketing

Marketo

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

Marketo

Sales Demo

A sales demo is a presentation where a sales rep shows a prospect how a product or service works and solves their specific problems.

Sales Demo

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

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

Representational State Transfer Application Programming Interface

A Representational State Transfer (REST) API is a web service that uses a simple, stateless architecture for systems to communicate online.

Representational State Transfer Application Programming Interface

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

Knowledge Base

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

Knowledge Base

Demand

Demand is the economic principle describing a consumer's desire and willingness to purchase a specific good or service at a particular price.

Demand

Buyer Intent

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

Buyer Intent

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

Content Management System

A Content Management System (CMS) is software for creating, managing, and modifying website content without needing specialized technical skills.

Content Management System

Application Performance Management

Application Performance Management (APM) monitors and manages an application's performance, availability, and the experience of its end-users.

Application Performance Management

Webhooks

Webhooks are automated messages sent by an app when a specific event occurs. They push real-time data to another app's unique URL.

Webhooks

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

Big Data

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

Big Data

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

Generic Keywords

Generic keywords are broad search terms that lack specific details like brand or location. They attract a wide audience with less specific intent.

Generic Keywords

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

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

Consumer

A consumer is an individual or entity that buys products or services for personal use, not for resale. They are the final user in a supply chain.

Consumer

Sales Pipeline

A sales pipeline is a visual representation of where prospects are in the sales process, from the first contact to the final sale.

Sales Pipeline

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

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

Buyer’s Remorse

Buyer’s remorse is the sense of regret or anxiety that can arise after making a purchase, often questioning if it was the right decision.

Buyer’s Remorse

Buyer Intent Data

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

Buyer Intent Data

Sales Intelligence

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

Sales Intelligence

Revenue Operations (RevOps)

Revenue Operations (RevOps) is a business function that aligns a company's sales, marketing, and customer service teams to drive predictable revenue.

Revenue Operations (RevOps)

Use Case

A use case is a detailed description of how a user interacts with a system to achieve a specific goal, outlining the steps from start to finish.

Use Case

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

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

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

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

Net Revenue Retention (NRR)

Net Revenue Retention (NRR) is the percentage of recurring revenue kept from existing customers, including upsells, downgrades, and churn.

Net Revenue Retention (NRR)

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

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

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)

Integration Testing

Integration testing is a software testing phase where individual modules are combined and tested together to verify their interaction.

Integration Testing

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

Single Sign-On (SSO)

Single Sign-On (SSO) is an authentication method allowing users to access multiple applications with one set of login credentials.

Single Sign-On (SSO)

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

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

Copyright Compliance

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

Copyright Compliance

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.

Awareness Buying Stage

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 Mix

The marketing mix is the set of marketing tools a company uses to sell products, defined by the 4Ps: Product, Price, Place, and Promotion.

Marketing Mix

Lead Qualification

Lead qualification is the process of determining which prospects are most likely to become paying customers based on predefined criteria.

Lead Qualification

Lead List

A lead list is a curated database of potential customers (leads) with contact information and other key data for sales and marketing outreach.

Lead List

Predictive Lead Generation

Predictive lead generation uses data and AI to find prospects most likely to buy, helping teams focus their efforts on high-value leads.

Predictive Lead Generation

Marketing Play

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

Marketing Play

Customer Relationship Management Systems

A Customer Relationship Management (CRM) system is a tool that centralizes customer data to help manage interactions and nurture relationships.

Customer Relationship Management Systems

Buying Committee

A buying committee is a group of stakeholders within an organization who are jointly responsible for making major purchasing decisions.

Buying Committee

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

Lead Scoring Models

Lead scoring models rank prospects by assigning points for their behaviors and demographics, helping sales teams prioritize their outreach.

Lead Scoring Models

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

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

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

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

SAM

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

SAM

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

Email Verification

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

Email Verification

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

Net New Business

Net new business is revenue from customers who have never purchased from your company before. It’s a crucial indicator of sustainable growth.

Net New Business

Microservices

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

Microservices

Triggers

Triggers are predefined conditions that, when met, automatically launch a workflow or action, ensuring timely and relevant outreach.

Triggers

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

Salesforce Administrator

A Salesforce Administrator is a certified professional who manages and customizes the Salesforce platform to meet a company's specific business needs.

Salesforce Administrator

Account Development Representative

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

Account Development Representative

Smile and Dial

"Smile and dial" is a high-volume sales tactic where reps make numerous cold calls from a list, often with little to no prior research.

Smile and Dial

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

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

Retargeting Marketing

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

Retargeting Marketing

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

Business-to-Business (B2B)

Learn about B2B, including what is it, its key elements, the benefits of B2B partnerships, the differences between B2B and B2C, and strategies for effective marketing.

Business-to-Business (B2B)

Chatbots

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

Chatbots

Consultative Selling

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

Consultative Selling

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

Social Proof

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

Social Proof

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

Sales Automation

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

Sales Automation

Data Appending

Data appending is the process of adding new data fields to your existing database records to enrich and complete your information.

Data Appending

Lead Generation Software

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

Lead Generation Software

Closed Lost

Closed Lost is a sales term for a deal that didn't go through. The prospect decided not to buy, or the sales team disqualified them.

Closed Lost

Mobile Compatibility

Mobile compatibility ensures your site or app works flawlessly on mobile devices, like smartphones and tablets, for a seamless user experience.

Mobile Compatibility

Mid-Market

Mid-market companies are businesses larger than small businesses but smaller than large enterprises, often defined by revenue or employee size.

Mid-Market

Account Mapping

Account mapping is comparing your customer list with a partner's to find common prospects and unlock new sales opportunities.

Account Mapping

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

Account-Based Marketing

Account-Based Marketing (ABM) is a focused B2B strategy where marketing and sales collaborate to target and convert high-value accounts.

Account-Based Marketing

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

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

Buyer

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

Buyer

Programmatic Display Campaign

Programmatic display campaigns use automation to buy and sell digital ad space in real-time, targeting specific audiences across the web.

Programmatic Display Campaign

Scrum

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

Scrum

Email Marketing

Email marketing is a digital strategy where businesses send targeted emails to prospects and customers to build relationships and drive sales.

Email Marketing