Did I lose you already? "Unlimited commissions? That's crazy." Every industry is a little different, but my industry (fitness centers) is very reliant on a strong sales staff. Determining a fair and aggressive commission structure is key to developing a highly effective sales team.
First, if you aren't familiar with my industry, here's the typical components of a sale: There's an up-front fee (usually called "enrollment fee" or "program fee"); a monthly membership fee and some upsell options (personal training, tanning, vending products, etc. each of which have their own up-front fee and monthly rate). The upfront fee is typically what we run promotions against and what customers challenge the most. A typical sale is composed of these sort of numbers: $75 Enrollment Fee, $30/month membership and an upsell of an extra $20/month for unlimited massage/tanning.
Our initial commission structure was a flat $10/new membership. With this structure in place a typical business unit would sell about 25 memberships per month. However, only about 60% of those new members were being charged the full enrollment. Why? Because we weren't providing incentive for them to collect the upfront fees. The sales team only got rewarded for signing the new member, not for collecting initial fees. In order to sign more members, they would negotiate on up front fees. We were losing around $550/month in fees and paying about $250 in commission. Because we were only providing incentive for new members, we were also losing a fair number of members because the team had little incentive to try and keep members from cancelling their membership. We were losing about 10% of our membership base each month.
After much discussion, we decided to change the commission target. Rather than reward new memberships, we offered commission based on up front fees collected. Anything beyond the initial $20 (our true cost) of each up front fee was split 50%/50% with the employee. So, on a $75 fee, the employee would earn $27.50 versus the previous $10.00/new membership. As a result, not only did they focus on collecting full fees, they also started up-selling more services. The sales process became more engaging and the employees were more motivated. The result? After 3 months of training, we were seeing an average of 32 memberships per month with an average upfront fee collected of around $85 on average.
On the previous model, we were collecting about $1,325 in fees and the employees were earning $250 in commissions. With the new commission model, we were collecting $1,680 (+26.7%) in fees and the employees were earning $1,040 (+416%).
We also offered the manager a bonus of $20 for each net positive membership (so, if there were 300 members at the beginning of the month and 310 at the beginning of the next month, they earned $200 in bonus).
While it seems counter intuitive to some, paying out 4 TIMES as much in commission actually increased the amount of revenue for our business rather than decreasing it. Your sales force is key to your success. If you invest smartly in them, your entire business can benefit.