Pros and Cons of Commission in Retail

2018-10-02T09:36:15+00:00September 26th, 2018|Categories: General, POS Functions, Retail POS|Tags: , , |

So we already covered the different commission structures available for all of our retailers. As we talked about, this can come in many different forms. Any of them are great, so long as it’s beneficial for all parties involved. But what about more general pros and cons of commission in retail? In any commission type that you choose, there will be benefits to be had, but there are still some things that you want to watch out for.

There’s also one really important thing to note in all of this: it’s crucial to think about your commission structure in terms of increasing productivity and profits, NOT in terms of minimizing commission and saving money. So let’s do the glass half full thing and start with the good stuff.

pros and cons of retail commission

Pros of Retail Commission

1) Motivates Great Service

Any commission incentivizes better customer service. Each salesperson benefits from the sale just like you do. Ideally, you find a way to structure the system to maximize this effect.

In turn, great service leads to more faithful customers and positive word of mouth, leading to more increases in sales down the road.

2) Encourages Teamwork

Team-based commission structures can quickly foster more camaraderie and bonding among your staff. It also ensures that staff training for new members will be thorough. Each of your veteran employees wants new members to be just as successful as they are.

3) Rewards Your Best Employees

Your commission system should incentivize excellent work ethic and performance. And with a system that fits your business, you’ll be able to easily and regularly reward your top employees. This keeps a happy team and lowers your staff turnover. It also attracts the best salespeople on the market.

4) Pay Based on Performance

There are varying levels, but basically, commission is a form of a retailer paying for a service. And it can be much easier to measure and far less frustrating than a flat salary. Salaries are hard to alter and can lead to a complacent attitude and lackluster performance.

5) Helps Promote New Products

Many salespeople are wary of selling unproven new products. No one wants to face an unsatisfied customer. In order to help push new products, specific commissions by product can encourage your team to get out there and sell.

6) Measures Profitability

Crunching the numbers on setting commission rates on different products that your business offers is a great excuse to look at the overall success or failure of your products and their individual revenue production and profit margins.

7) Offers a Flexible Schedule

Flexibility in one’s work is a clear motivator and drives better office morale. With commission-based pay, you can afford to give your staff the flexibility they desire. After all, if they aren’t working hard, they aren’t being paid (or at least not their full salary). As long as you set an appropriate base salary to commission ratio, this will be another added bonus to your commission system.

8) Increases Sales

This goes without having to say, but we’ll say it anyway. With any change to the structure of your business, the end goal is always to increase your sales. This is no different with commission. And in this case, your employees are benefitting along with you!

Cons of Retail Commission

The potential benefits of implementing a successful commission system in your workplace are staggering. But there are certainly some downsides, and if not done well, some serious consequences to your retail business.

1) Aggressive Sales

No one likes a pushy salesperson. It’s annoying, even intimidating, and a quick way to lose a lot of customers. Of course, with any incentive for more money, your employees will want to make each and every sale. So it’s important to have guidelines and protocols laid out from the start. Monitor the performance of each team member and make sure they are staying respectful of all customers.

2) Competitive Workplace

A race for the most sales can lead to arguments, a poor atmosphere and resentment among your staff. You want to take advantage of that pro mentioned above: great teamwork. Don’t go the other direction and sow discord among your employees. Additionally, try to keep commission rates confidential. Differences in pay are another quick way to foster a negative workspace.

3) Discourages Personal Growth

Tipped employees at restaurants are the classic example of this. Too often, the pay structure favors the hourly employees over management. Avoid this if possible. You want to encourage your best staff to grow within your business and learn new roles and skills.

4) Neglect Other Duties

Each staff member should have a variety of tasks. That includes your sales team. But with too much financial incentive on simply making sales, this can often lead to them forgetting or refusing to complete other important parts of their role.

5) Poor Job and Income Security

First, during a poor economy, the first people to be out of work are those in sales. People are living more within their means and therefore spending far less. Commission-based pay can leave your sales team out of a job in this scenario.

Even in good times, however, income can easily fluctuate month to month. While some personal financial planning can help alleviate some of the stress surrounding this, it’s still not an optimal situation for any staff member. (Note: some retailers offer “draw against commission.” This means that they will pay a minimum amount, even if commission standards aren’t met in a certain month. In turn, the employer will draw against future commission value to pay themselves back.)

6) Lessened Profitability

If not executed well, a commission structure can damage your business. It can scare customers away, create poor teamwork, encourage infighting, and lead to a lower performance from your sales team. These are all avoidable casualties, but ones to keep in mind as you implement and measure this system.

Get the Pros and Avoid the Cons with Your Commissions in Retail

Like any retail advice we give, closely monitor the performance and results of your commission structure. Your retail POS system can offer reporting and analysis that will help illuminate trends and provide actionable data. This allows you to make changes before it’s too late, and always strive to improve your small business. to find out more about KORONA, click below!

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About the Author:

As Content Strategist at KORONA, Michael comes from a background in blog writing and content management as well as extensive use of various point of sale systems. He's passionate about helping small businesses reach their potential, and Jeopardy. For inquiries and suggestions please contact our marketing team.