Sales Commission Plans in a Down Economy

This week we were talking to a customer who was looking for commissions software to automate their commissions. The customer’s current plans were very simple: they pay a flat commission rate to their sales reps on a monthly basis on any sales, that was invoiced to the customer.

But now they want to move to a commission plan, where the commission will be paid when the customer actually pays the company for the invoice. Actually, they wanted to pay a portion of the commission when the invoice is generated and a remaining portion when the payment is received from the customer.

We have seen this type of commission plan used by many of our customers. But it particularly makes sense in this economy. Most customers are delaying payments and any payment that you can get early could be the difference between getting paid for your product and not getting paid at all. So it makes excellent sense to incent the sales people to manage the customers through the process of paying for your products. It will also make the sales person care a little more about having a successful and satisfied customer.
In addition, if the customer never pays, then the company is not out that much money in paid commissions.

Splitting commissions between invoice and payments also makes sense to keep the sales person’s motivation high, since they have made at least some amount of the money up front. A recommendation for this kind of a split would be to pay 30% of the commissions up front with the invoice and another 70% on receipt of payment from the customer.

Gopi Mattel