What’s the Difference Between Commission and Incentives?
Commission and incentives aren’t synonyms for describing the same thing – a monetary reward to commend someone for a behavior. Not only are sales commission and incentives distributed for different reasons and at different times, each have a unique psychological impact on the receiver and encourage different behaviors. Now, what exactly are commission and incentives, and the differences between them?
|Commission: An income payment based on a percentage of the product or service. It’s always in the form of cash.||Incentive: An amount of money or other type (non-monetary) of reward to motivate someone to achieve a task.|
Although both performance-based rewards hold respective places in sales motivation, not everyone in sales leadership thinks so. In fact, many sales managers, directors and VPs may feel that commissions and bonuses are motivation enough for a job well done. That’s just not the case. Incentives, according to Sodexo.com, “provide a special boost to staff or dealer motivation… [and] create opportunities for publicly recognizing exceptional contributions.”
While commissions effectively tie teams to the sale and pay out based on a portion of what was sold and how much, they are typically paired with little to no base salary. Sales members then work to increase their pay – as they should – and soon the process of making a sale and getting a commission becomes routine, expected.
Sales rewards break this cycle, driving salespeople to go beyond the formulaic X amount of product sold to see X amount on their regular paycheck. More even, sales incentives can be used to motivate a wide variety of behaviors, not just make the big sale that nets a big commission.
Sales Incentives vs Commission
However you define commission and incentives, you must make it clear to everyone in your organization which is which. There should be a top-down, consistent understanding of how and why each one is given. Developing a sales incentive plan or program that aligns specific company goals to a tiered rewards clarifies how teams can win rewards separate from their regular commission.
A commission is a fixed monetary payout a salesperson already knows they will receive if they move a specific amount of product within a specific timeframe. Because of the commission’s contractual nature, salespeople simply don’t see a commission as a “bonus” on top of their base pay. Rather, it’s an expected result of showing up to work. This is not to say that commissions don’t drive sales. They do, but mostly by giving sales reps a goal and telling them to meet – not exceed – that target.
Unlike commissions, sales rewards can be given at any time, for any reason: as part of a sales promotion, for acquiring warranty registration, for upselling maintenance or supplemental products, for going above and beyond the call of duty, completing training courses, earning certifications and so much more. Incentives motivate teams holistically, meaning sales rewards drive desired behavior both monetarily and culturally.
Commissions can and do motivate sales teams to work toward a specific goal, but monetary rewards, no matter how significant, lose their ability to be an effective motivation tool eventually. Why? Commissions often go into everyday living costs. Incentives give sales reps the opportunity to redeem something special.
A sales incentive program makes it easy to announce sales promotions far in advance of the action you want your team to take, creating buzz and inviting friendly competition where there had been none. Incentivized sales promotions get people talking and sharing news about their rewards. This inspires other team members to go above and beyond during future promotions – and brag about it! – simply because they too want a reward. Doing the same with commissions is often seen as tacky and ill-form.
For salespeople, especially the competitive top performing ones, exclusive travel incentives challenge them to be even better. Offer travel incentives and you’ll make a lasting impression with top-tier performers, driving up their motivation and loyalty.
Where commissions give structure, incentives afford sales leadership with flexibility. Based on a sales reps’ actions, the sales promotion or a specific goal, you can offer different incentive reward amounts appropriate to the task accomplished. However, were you to try to change the commission amount, that’s bad news for leadership and the teams they manage.
|Given as a portion of a sale, and are purely monetary. An ineffective motivation tools because commissions are used on everyday purchases.||Either monetary or non-monetary, but the most effective are non-cash incentives. People want to spurge on special items they may not otherwise be able to buy with their commission.|
|Tacky to boast about as it’s just like bragging about your salary.||Exciting for whole teams to join in on the fun, win rewards and “brag” about it.|
|Contractually enforceable as part of an employee agreement. Changing a commission amount invites unwanted assumptions.||Flexible. No matter the goal, action or time of year, salespeople can be incentivized.|
|Often seen as an expected and regular part of compensation that ties output to income.||Awarded at any time, for any reason. For this reason, incentives can have a greater impact on revenue and the company culture.|
As a payment based on a percentage of a sale, commissions tie income to output, showing sales reps how their work influences their regular paycheck. Incentives, however, takes that output and motivates teams to go beyond it for greater rewards, ultimately putting your company in a better position to beat sales goals. A healthy balance of both performance-related rewards makes for increased profit margins, a more motivated sales team, and a more effective sales process.