How does commission pay work? Employers have many different methods for compensating workers, including hourly wages, salary, bonuses, merit pay, cost-of-living increases, and commission.
Commission systems for compensation reward employees for selling products directly to consumers or other businesses.
The amount of commission earned is based on achieving sales criteria like meeting goals or exceeding quotas.
Different Types of Commission
Depending on the employer, the commission may be paid on top of base pay or salary, paid as a draw against future commission earnings, or paid as a bonus.
- Straight Commission is the purest form of commission, where workers receive pay solely based on the sales they generate.
- Draw Against Future Commission provides workers with income that is deducted from commission once it is earned.
- Salary Plus Commission systems involve establishing a set salary for sales personnel and then adding commission income based on the sales produced.
- Salary Plus Bonus arrangements for compensation entail the establishment of a set salary that is supplemented by a lump sum when employees achieve specific sales goals.
How Commission is Calculated
There are many different structures that employers use as a basis for calculating commission.
Gross Sale Commission
In its simplest form, commission can be based on gross sales volume. For example, a real estate salesperson sells a house and receives 1.5% of the sales price as a commission.
Percentage of Profit
Commission can be based on a percentage of the profit on an item that exceeds the employer's cost. For example, if a car costs the dealer $20,000, an automobile salesperson might earn 5% of the final sales price over $20,000.
Variable commission systems involve different rates of commission at various levels of sales or upon reaching specific goals. For example, a salesperson might get 3% commission on the first $100,000 in sales, 5% on sales from $100,000–$200,000, and 7% on all sales exceeding $200,000.
Territory Sales Commission
Territory or group sales commission involves rewarding all salespeople in a team if the group meets or exceeds sales goals in their region.
Top 7 Commission-Based Jobs
These are some of the commission-based sales jobs with the highest earnings potential as of May 2019, according to the most recent available data from the Bureau of Labor Statistics.
1. Sales Engineers
Sales engineers sell technologically advanced products or services to businesses. They must have the scientific and technical skills to understand the products’ functions and be able to explain those functions to clients. They may also help in research and development of these products and help their customers solve problems after installation.
Salary: Median pay for sales engineers in May 2019 was $103,900, with the bottom 10% of earners making less than $59,180 per year and the top 10% earning more than $174,270 per year. The highest average sales were paid in the telecommunications, computer systems design services, and wholesale electronics segments of the market.
Job Outlook: Employment of sales engineers is projected to grow 6% between 2018 and 2028, about as fast as the average for all occupations. Employment growth is likely to be strong for sales engineers selling computer software and hardware. Strong industry growth is also expected in computer systems design and related services, in which employment is projected to increase 24% between 2018 and 2028.
2. Wholesale and Manufacturing Sales Representatives
These sales representatives sell products to private companies and government agencies. Wholesale and manufacturing sales representatives may identify prospective clients, help existing clients understand and select products, negotiate prices, and prepare sales contracts, among other duties. They may work for one manufacturer or several companies.
Salary: The median pay for wholesale and manufacturing sales representatives, excluding those who sell technical and scientific products, was $59,930 in May 2019. The bottom 10% of earners made less than $30,530 per year, while the top 10% of earners made more than $125,300 per year. Sales reps selling technical and scientific products made the highest salaries in this category, with median earnings of $81,020 per year.
Job Outlook: Overall employment of wholesale and manufacturing sales representatives is projected to grow 2% between 2018 and 2028. This is slower than the average for all occupations.
3. Securities, Commodities, and Financial Services Sales Agents
Securities, commodities, and financial services sales agents buy and sell securities (e.g. stocks, bonds) and commodities (e.g. gold, corn). They monitor financial markets, advise companies, and sell securities to individual buyers.
Salary: The median annual wage for securities, commodities, and financial services sales agents was $62,270 in May 2019. The lowest 10% of earners made less than $35,320 per year, and the highest 10% of earners made more than $204,130 per year.
Job Outlook: Employment of securities, commodities, and financial services sales agents is projected to grow 4% between 2018 and 2028. This is about as fast as the average for all occupations.
4. Advertising Sales Agent
Also called advertising sales representatives, these workers sell advertising space on online, broadcast, and print media platforms to businesses and individuals. Their job responsibilities include contacting potential clients, maintaining customer accounts, and making sales presentations.
Salary: The median annual wage for advertising sales agents was $53,310 in May 2019. The lowest 10% of earners made less than $25,390 per year, and the highest 10% of earners made more than $118,300 per year.
Job Outlook: Employment of advertising sales agents is projected to decline by 2% between 2018 and 2028. However, prospects are much better in the digital market, where advertising is concentrated in online videos, search engines, and mobile content geared toward smartphones or tablets.
5. Insurance Sales Agent
Insurance sales agents sell one or more types of insurance, for example, life, health, property, etc. They contact potential clients, explain the features of various policies, and help customers choose plans. They also manage policy renewals and maintain records.
Salary: The median annual wage for insurance sales agents was $50,940 in May 2019. The lowest 10% of earners made less than $28,000 per year, and the highest 10% of earners made more than $125,500 per year.
Job Outlook: The number of insurance sales agent jobs is projected to grow 10% between 2018 and 2028, which is faster than the average for all occupations. The Bureau of Labor Statistics predicts that the demand for independent agents will grow the fastest, as more insurance companies opt to use brokerages.
6. Real Estate Brokers and Sales Agents
Real estate brokers and sales agents do similar jobs, helping clients buy, sell, and rent property. However, real estate brokers are licensed to manage their own real estate businesses, while sales agents work for brokers, typically on a contract basis.
Salary: The median annual wage for real estate brokers was $59,720 in May 2019. The lowest 10% of earners made less than $23,600 per year, and the highest 10% of earners made more than $178,720 per year.
Job Outlook: Employment of real estate brokers and sales agents is projected to grow 7% between 2018 and 2028, about as fast as the average for all occupations. Job prospects are more favorable during periods of economic expansion and low interest rates.
7. Travel Agents
Travel agents plan, book, and sell travel for individuals and groups. They may book transportation, lodging, and activities, including group tours and day trips. Typically, they also arrange alternatives when plans change during the trip.
Salary: The median annual salary for travel agents was $40,660 in May 2019. The lowest 10% of earners made less than $23,660 per year, and the highest 10% of earners made more than $69,420 per year.
Job Outlook: The Bureau of Labor Statistics projects that employment for travel agents will decline 6% between 2018 and 2028. However, as current travel agents reach retirement age, more opportunities may open up for new agents, especially those who focus on a niche like corporate travel.
What’s Next on a Sales Career Path
How you can you grow your sales career? The next step on the career path for employees who want to advance from a sales role is typically a sales manager position. The median pay in 2019 for a sales manager was $126,640 per year. Employment for this role is expected to grow 5% between 2018 and 2028.
To move into a management role, you’ll probably need a few years of experience as a sales representative. Many employers require a bachelor’s degree for this job, and may look favorably on candidates who have coursework in management, marketing, economics, accounting, finance, or related fields.