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The idea behind base plus commission is to encourage a salesperson to get out and make as many sales as possible – how much he makes beyond his basic salary is based on his performance. Whether you are considering taking a sales job with this compensation structure or offering your employees this option, knowing how base plus commission works will help you figure out if the combination is a moneymaker.
In a base plus commission structure, a set amount is paid to you each payday. This salary can consist of an hourly wage or a fixed amount paid during each pay period. Most salespeople cannot rely on their base salary alone, since this usually is a minimal amount. On top of the base salary, the company pays you a commission based on the sales you make. This amount could make up a large chunk of your annual income at the company.
Many companies offer a tiered commission rate. In this system, if you meet a certain number of sales, you move to a higher commission bracket and make more money. A number of factors contribute to your potential commission, including the company, location and the industry –– for example, the technology industry pays very well, according to Forbes. Your years of sales experience also may affect your commission rate, depending on your company's policy.
A company offering base plus commission is making a commitment to you. The base helps you pay your bills as you develop your skills at selling the company's products, and tides you over during period of slower sales. From the business owner’s viewpoint, the advantage comes when you determine the right balance of a basic salary and commission that satisfies your workforce and leaves you paying mostly for performance.
Companies offering base plus commission tend to offer a lower a commission rate to their salespeople compared to businesses that pay straight commission. This can be less attractive to top sellers who regularly make enough money that the base salary is just a small percentage of their paycheck. In addition, relying on commissions to boost your base paycheck can take awhile –– some employers won’t pay the commission until the client pays them, which could be months after the sales contract is signed.
Nancy Wagner is a marketing strategist and speaker who started writing in 1998. She writes business plans for startups and established companies and teaches marketing and promotional tactics at local workshops. Wagner's business and marketing articles have appeared in "Home Business Journal," "Nation’s Business," "Emerging Business" and "The Mortgage Press," among others. She holds a B.S. from Eastern Illinois University.