As a sales representative, your pay can get complicated. No matter what industry you’re in, you tend to have some sort of performance-based pay scale that rewards strong sellers with commissions--sell more, make more. But, compensation packages and commission structures can vary wildly across different industries and businesses.
Want to know how much you can expect to make as a sales representative, or how your current compensation stacks up against others in the space? We’ve broken down the many different ways you can make bank as a sales representatives across different industries.
The Basics: Compensation Packages
Let’s talk about different types of compensation packages. There are two different types of pay: “fixed” (guaranteed salary) and what percentage is “variable” (earnable through commissions, bonuses, etc.).
In general, sales representatives will receive one of these two common options: base salary plus commission or straight commission.
Base Salary Plus Commission and/or Bonuses
You earn a fixed regular salary but have the opportunity to make more on top through sales. The idea is that you’re guaranteed a livable wage (and benefits) and incentivized to work hard to earn even more. But, the bonus percentages you earn will be lower since you’re already being compensated.
In general, this type of compensation fosters a more team-based culture. You have your basic needs met no matter what, so competition isn’t as fierce. But the possibility of racking up some bonuses keeps sales reps on their toes. However, sales reps will likely also be responsible for things besides selling as well, like training new employees.
This is exactly what the name suggests--you’re only paid when you make a sale. It’s a high risk, high reward situation where you generally get a much higher percentage commission (think two to three times more) than reps with a base salary plus commission. In this position, your job title may be “independent sales rep.”
Straight commission jobs tend to have more turnover, and the competitiveness can take its toll on company culture. However, top performers can expect to cash in big.
Of course, there are always going to be variations of these two basic packages. For example, some companies will tier their commissions (you get X% for your first $X in sales, then Y% for your next $Y in sales, etc.).
You will also find that some companies operate on a salary-only payment structure, which means employees have sales goals but also can expect a steady paycheck. This is great for boosting loyalty and fostering a positive work environment but also means there will be less motivation to go above and beyond--which is what makes this structure pretty rare in sales.
So, What’s the Most Common Compensation Plan?
According to the LBM Journal, the most common payment structure for outside salespeople is base pay plus commission.
Source: LBM Journal
And, according to the Harvard Business Review, in the United States, the most common payment structure is 60% fixed pay, 40% variable.
Commission: What Can You Expect?
Commissions are a percentage of the total sale value that the sales representative earns each time they close a deal.
Unfortunately, it’s not possible to give you average commissions made by sales representatives. (Believe me--we tried.) The truth is, commissions vary immensely based on industry, experience, and individual business goals. Some come in the form of a simple percentage, while others are much more complicated.
Generally, the size of your commission per sale depends on a few variables, like:
- How difficult is the sale? How complex is the sales cycle?
- How long does it take to go from prospect to closing the deal?
- How much experience is needed?
- How much is the rep expected to do on their own?
If you want to go absolutely nuts seeing all the possibilities, check out this article by Time to Hire which suggests several different commission structures for various industries. It’s super in-depth and really helps to give a sense of why you won’t ever find an “average sales commission by industry.”
Source: Time to Hire
Beware of Clawbacks!
To increase customer retention, some companies will penalize sales representatives if their client churns within a set period of time. For example, at Hubspot, if a customer cancels their service in fewer than four months, the rep must give back their commission.
Now, this isn’t necessarily a dealbreaker--it’s actually pretty common--but you should definitely be aware of it going in. It essentially means that your commission will be “pending” until a specific benchmark is met, which may be quite a ways down the road.
Bonuses: What’s the Deal?
If you thought that commission was complicated, let me introduce you to bonuses. Not every company offers bonuses, but every company that does has its own way of structuring them.
Unlike commission, bonuses are not a percentage of your total sales. Instead, they are an extra sum of money you earn by achieving some sort of business goal. (Think video game achievements.)
The point of bonuses is to motivate sales representatives to go above and beyond. Often, these can be used by business owners and executives to address the company’s most pressing concerns. For example, if churn is high, bonuses can be given to reps who have the lowest rate.
Average Total Compensation
Your total compensation as an outside sales representative will obviously vary wildly based on experience, payment structure, business, industry, etc. But LBM Journal put together this spiffy chart to give you a birds-eye view of compensation overall.
Source: LBM Journal
Like we mentioned before, it’s nearly impossible to predict commission percentages and structures based on industry alone. But fortunately, you can take a look at the average take-home pay by industry. Here’s how it shakes out for some of the top industries (as of the first quarter of 2019).
(Data collected from Glassdoor)
What About Other Perks and Benefits?
When comparing your compensation package, it would be remiss to skip over the other perks and benefits offered by your company. Of course, things like healthcare, retirement plans, and paid time off are always a plus. But there are other sales-specific perks you want to check for as well, like:
- Car and mileage reimbursement (if you’re an outside sales representative)
- Cellphone/data plan reimbursement
- Computer and tablet and data service
- Customer entertainment expense account (take those prospects out for a nice lunch!)
Obviously, the likelihood that you’ll receive reimbursement greatly depends on how the business operates. Consider how much you expect to be driving, if you’ll be using your personal phone, and if you’ll need data on the move.
Things to Think About
If you’re considering a position as a sales representative, it is absolutely essential that you fully understand exactly how you will be compensated. Before you sign on the dotted line, some questions to consider are:
- Do I earn a base salary? What quotas must I reach to earn it?
- Will I earn a commission from my sales? How is the commission structured?
- Is there a cap on how much variable pay I can earn?
- Is there an opportunity to earn bonuses?
- What additional benefits are offered?
- Will I be reimbursed for expenses? Which ones?
At the end of the day, sales is a tough business, but it can also be extremely rewarding. Be sure your payment compensation plan is a fair one and then give it your all!
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