A commission system is the clearest answer to the question the sales team asks: “what is expected of us?” You get whatever you reward; reward the wrong thing and you grow the wrong behavior. Here are six common mistakes in commission systems.
1. Paying commission on volume without seeing margin
When commission is paid only on revenue, salespeople gravitate toward the easiest sale, usually the lowest-margin product. Revenue grows, profit does not. Fix: tie commission to gross profit, or to rates that vary by product group.
2. Overly complex calculation
If a salesperson cannot calculate their own commission at month end, the system is not working. Three or five clear rules are better than twenty exceptions. If you can fit the commission table on one page, you are on the right track.
3. Targets that are unreachable or too easy
A target that is too high makes the team give up in the very first month; a target that is too low turns into a system where everyone gets paid commission but nobody is challenged. Derive the target from past data and market conditions, and leave it open to review in the first quarter.
4. Forgetting collections
If a sale was made but the money was not collected, the business has not won. Linking commission not to the moment of sale but to collection (or a certain percentage of collection) fixes both cash flow and customer selection.
5. Leaving competition within the team uncontrolled
Individual commission is a strong motivator, but if it includes no team target at all, information sharing stops and salespeople fight over customers. Adding a small team component to individual commission often restores the balance.
6. No written rule, and frequent changes
Commission rules that are given verbally or change every quarter erode trust. Put the commission rules in writing and state up front when and under what conditions they may change.
A commission system is not a table to be set up once and forgotten; it is a living tool that needs review as the product, market and team change.
