A good sales rep can be hard to come by, and attracting top talent continues to be a concern for sales leaders. The best way to make sure that you not only recruit top talent and maintain them? Competitive pay.

Most sales reps are coming to their career for the ability to make money, so how you compensate your team will determine the quality of talent you attract and how long they stay. In fact, 56% of employees that leave their current job say inadequate pay was the motivating factor. In another survey, 43% of workers would be willing to quit at their current company if they received a 10% salary increase.

Illustration of businessman holding coin with text "Sales Rep Commission Rates"

Most sales reps are coming to their career for the ability to make money, so how you compensate your team will determine the quality of talent you attract and how long they stay. In fact, 56% of employees that leave their current job say inadequate pay was the motivating factor. In another survey, 43% of workers would be willing to quit at their current company if they received a 10% salary increase.

Leadership has to walk a fine line: pay too much, and it could have a detrimental impact on other parts of your business. Pay too little, and your sales reps will walk. Plus, how you decide to pay your sales reps may also affect whether they stay or not. Commission typically encourages sales reps to go above and beyond to make sales, but it also can have a lot of instability.

Want to know how much to pay your sales representatives, or how your current compensation stacks up against others in the space? We’ve broken down everything about sales commissions, including averages for different industries.

Photograph of figurines standing on stacks of coins

What are Commission Sales?

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 see 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 helps to give a sense of why you won’t ever find an “average sales commission by industry.”

Photograph of notebook with cover reading "commission"

How to Structure Sales Commissions

Let’s talk about different types of compensation packages. There are two different types of pay: “fixed” (guaranteed salary) and “variable” (percentage earned 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

In this structure, your team earns a fixed regular salary but has 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. Your team has your basic needs met no matter what, so competition isn’t as fierce. It also gives you more control and oversight to dictate how your sales reps spend their time.

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.

Straight Commission

This is exactly what the name suggests—your team is only paid when they make a sale. It’s a high risk, high reward situation where they generally get a much higher percentage commission (think two to three times more) than reps with a base salary plus commission. In this position, their job title may be “independent sales rep.”

Typically, independent sales reps have much more freedom than those who earn at least some money from the company. You can expect to have less control and oversight over independent sales reps. For those earning straight commission, their paycheck is usually incentive enough to keep themselves motivated. It also allows leadership to hire bigger teams, since they only pay the reps if there are sales.

Straight commission jobs also tend to have more turnover, and competitiveness can take its toll on company culture. However, top performers can expect to cash in big.

Other Options

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.).

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.

What is a Standard Commission Rate for Sales?

Determining what is a fair commission rate for your sales team depends on a variety of factors. If your company tends to offer a larger base salary, commissions typically run small. For sales reps that work on commission-only, though, they tend to be larger. Also, depending on how much research and technical knowledge required, a larger commission will make you competitive.

The typical commission rate for sales starts at about 5%, which usually applies to sales teams that have a generous base pay. The average in sales, though, is usually between 20-30%. What is a good commission rate for sales? Some companies offer as much as 40-50% commission. However, these are typically sales reps that require more technical skills and knowledge, plus have a compensation structure that relies more heavily on commission.

How competitive your commission, though, depends largely on what industry your company works in. According to the BLS Occupational Employment Statistics (OES) survey, the 2019 sales commission averages for industries are:

  • Engineering: $112,780
  • Securities, Commodities, and Financial Services: $93,090
  • Wholesale and Manufacturing, Technical and Scientific Products: $92,980
  • Insurance: $67,780
  • Advertising: $64,660
  • Real Estate: $62,060
  • Retail: $29,360

Photograph of businesswoman cheering

Typically, the sales reps from the higher-earning jobs tend to require a bachelor’s or even secondary degree to get the technical knowledge required to succeed. The more technical knowledge required, the higher the commission rate.

How to Calculate Commission for Sales

With the various ways to calculate salary for sales reps, it can be difficult to compare how your company stacks up to your competitors. This is especially true if you use a tiered structure or variable commission rates. However, taking time to calculate the commission of the sales team can give you a valuable look at the average salary of your team to make sure you offer competitive pay.

Here is a guide to calculate commissions:

Step 1: Set Up a Time Period

Typically, payments are made on a monthly or bi-monthly bases. If you’re looking for an average, you may want to compare different times of the year. For example, holiday season can be busy for retail sales reps, but summers tend to be slower.

Keep in mind that your commission period can vary according to your policy. For example, some companies delay payment until they receive a full payment from the customer. If that is the case, they may not see the commission until weeks later.

Step 2: Calculate the Total Commission Base

Once you have determined what time periods to calculate, add up total amount of products sold. If there are different commission rates depending on the product, calculate each commission rate separately.

Step 3: Multiply Commission Rate by the Commission Base

Multiplying the commission rate by the commission rate will yield total commissions made. If the commission rates vary by product or service, calculate them separately, then add together. For example, if you offer a 5% commission rate for selling $100,000 worth of product:

$100,000 x .05= $5,000

If your company works by traditional commission structure, it’s as easy as that. You can add that to any bonuses or base salary to get a sense of what your team typically earns.

However, many companies offer variable commission rates. Not all products or services are as easy to sell as others, so sometimes the commission will vary. For example, if your team earns a commission of 10% off of Product A (which totaled $100,000) and 15% off of Product B (which also totaled $100,000), their commission would be:

Product A: $100,000 x .1= $10,000

Product B: $100,000 x .15= $15,000

From there, you can calculate the total by adding all the variables together. In this example, for instance, the total commission would be $25,000.

Other companies like to encourage high achievers by offering tiered commission rates. For example, your company might have a 10% commission rate for up to $100,000 in sales, then 15% for anything over and beyond that. If your sales rep made $150,000 the math would look like:

$100,000 x .10= $10,000

$50,000 x .15= $7,500

Together, the total commission would be $17,500. Once you calculate your team’s commissions, you can compare them to your industry to decide whether you need to reconsider your commission structure.

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.

Graph of compensation types for outside salespeople
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.

Example of sales compensation plans
Source: Time to Hire

Additional Considerations for Sales Commissions

While the company’s compensation structure and average pay are a strong draw for talented sales reps, it is far from the only consideration. Some extra considerations help protect your business and create additional compensation for your sales team.

Clawbacks for Accountability

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.

This strategy is powerful for companies with more generous compensation plans. It ensures that you are truly compensating your sales team for building the company. It also encourages your sales reps to consider whether a customer is truly staying for the long-haul, instead of only short-term gains.

Now, this isn’t necessarily a dealbreaker for most sales reps--it’s actually pretty common--but you should make this clear to your sales team. It essentially means that your reps 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.

Photograph of person working with a cup of coffee in front of their computer

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.

Graph of 21018 earnings of highest paid outside salespeople
Source: LBM Journal

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!)

Photograph of people putting their hands together in the middle of a circle
Source: Pexels

The reimbursement greatly depends on how the business operates. Consider how much you expect your reps to be driving, if they’ll be using your personal phone, and if they’ll need data on the move.

Beyond compensation, the perks that your company offers can be a draw for talent. It also encourages your sales team to go above and beyond if they know they will be compensated for it. They might take more time on phone calls away from the office, for example, or drive to see a prospect that might otherwise cost them too much in gas.

Perks for your employees also signal to them that you are a company that will care for their needs and equip them to succeed. This can be another tool for recruiting and keeping your current sales reps happy.

Things to Think About

Companies cannot thrive without a talented sales team. Sales is what turns leads into paying customers and ensures the growth of your organization. The best way to attract and retain the best possible team is by offering competitive pay. Without understanding the averages of their industry, many businesses fall short and miss out on critical talent.

Take some time to review your company’s compensation strategy. Whether you need to pay your team more, offer more benefits, or overhaul the entire structure, you can create an enticing package that will allow your business to grow.