Paying out sales commissions is a situation that causes many internal company disputes. One side considers salespeople receiving commission compensation is the same as any other salary and wage expense. The other side considers those commissions well worth the money spent as they produce customers and revenue that would otherwise be left on the table.
The question arises as to which side is correct, or if there is some merit to both cases. In theory both arguments contain valid points. In reality, the issue is not that cut and dried. Commissions are vital to the production of revenue, and for the addition and maintenance of the customer base. At the same time, commissions must be paid out of the company cash flow, the same as other salaries and wages. The end point should be considered in terms of value added to the organization, and to return on investment.
One of the factors that makes commission payments controversial, from the viewpoint of staff personnel, is how high the dollar amounts can rise. Accustomed to consistent pay packets, the staff person or the business owner may feel the sales representative is getting overpaid. As sales numbers rise, even if they are meeting and exceeding agreed upon targets, so too do the payments. Along with the rising commissions, percentage rates may escalate, and bonus money may be triggered as well.
The raw commission numbers, taken in isolation, can often appear very large when removed from their revenue component. That revenue side of the equation is very frequently ignored by the business owner or manager. Without that additional revenue, the commission cheques will be much smaller. Is that really beneficial for the company?
In effect, the sales rep has created and enhanced the business cash flow, and is being paid what she is worth to the organization. Not many other jobs can make that bold claim in an objective way. Low level sales producers receive low amount pay days. Bottom producers are not worth what they are paid as they don't add much revenue or new customers for the company. Star performers earn their commissions and bonuses.
The star producers are the revenue producers of the company. Instead of falling prey to the urge to curtail or cap raw commission payouts, embrace the additional income for the business. Keep in mind that the commission is paid for production. New customers and added revenue are valuable, and the marginal sales on the extreme edges are doubly important. Without the star performers creating those extra transactions, that money would be left on the table.
Instead of counting the payments, consider what money would not be in the company account at all. Without those additional sales, the company cash flow would be much tighter and less plentiful. Extra sales mean more money for growth and reinvestment.
Think of those commissions as an investment in the company and its future growth. That wonderful thought will change your perception of commission sales once and for all.
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