What’s Right for My Sales Team: Commission or Profit-Sharing?


We all know that incentives work. We use them all the time – to teach and motivate children, to train our pets, and to encourage salespeople. While no one questions whether incentives work, we do often question which incentives work, or how they should be given out.

In a business, and specifically on a sales team, compensation structure can be a complex issue. Businesses must balance the need to incentivize the sales team with the need to lower the cost of sales and meet revenue targets. Luckily, there are different strategies that businesses can leverage for incentives, such as commission and profit sharing. Find out what type of incentive is best for your business.

Profit Sharing: Sales Process That Involves Several Teams and People

It can be hard to attribute the sale to a specific person or even team with certain products and sales cycles. Some require multiple touchpoints over several months, custom implementation of new features, and a long training period once the sale is complete. In this situation, profit sharing is a good way to incentivize your team. Everyone works together to ensure that the sale closes and that the customer is happy, so everyone should be rewarded for their effort.

Commission: Sales Process that Requires Direct Relationship with Customers

When your sales reps are directly responsible for the outcome of the sale, it makes more sense to incentivize with commission. They will push harder to close sales with prospects, and they deserve to be compensated more for bringing in more revenue for the organization.

Commission: For Teams That Have Aggressive Growth Targets

If your business is in growth-mode, and you are trying to take market share from a competitor or expand into a new market, you should implement a commission structure. You may set team targets or individual targets, and you may create a flat rate of commission or a hierarchical commission structure, but your team will have more urgency to hit your aggressive growth targets if their incentive is transparent and immediate.

Profit Sharing: For Teams that Focus on Retaining High-Value Customers

If your business relies on a few enterprise-level customers for most of its revenue, and you are not looking to expand with new customers, it may make more sense to use a profit-sharing incentive structure. Your team needs to focus on providing great customer service year-round, which is better rewarded with profit-sharing.

Your incentive structure will impact your culture, your team, and your revenue. Use our tips to evaluate your needs and priorities, and your incentive structure will be sure to have an impact.