Updated: October 1, 2022
Before committing to a commission based structure for your retail business, its worth weighing the pros and cons of using such a format. 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.
- Motivates Great Service
- Encourages Teamwork
- Rewards Your Best Employees
- Pay Based on Performance
- Helps Promote New Products
- Offers a Flexible Schedule
- Increases Sales
Pros of Retail Commission
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.
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.
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.
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.
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.
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.
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 potential consequences for your retail business.
- Aggressive Sales
- Competitive Workplace
- Discourages Personal Growth
- Neglect Other Duties
- Poor Job and Income Security
- Lessened Profit
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.
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 positive attribute 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.
Servers at restaurants are the classic example of this. Often, pay structures can favor tipped 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.
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.
The first people to be out of work during an economic downturn are those in sales. Customers are more likely to live within their means and spend less. In this scenario, commission-based pay can leave your sales team out of a job.
Even in good times, however, income can easily fluctuate from month to month. While some personal financial planning can help alleviate some of this stress , 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.)
If not executed well, a commission structure can damage your business. It can scare customers away, create poor teamwork, encourage infighting, and lead to 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
Closely monitor the performance and results of your commission structure. Your retail POS system should offer reporting and analysis to help illuminate trends and provide actionable data. Use this insight to make changes before it’s too late, and always strive to improve your small business. Give us a call today to learn more about KORONA POS and schedule a demo today!
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Frequently Asked Questions About The Pros And Cons Of Commission In Retail
Some retail companies build commission structures into employment policies to incentivize workers and boost sales. Others choose to pay higher salaries and refrain from offering commissions at all. The actual percentage of commissions range from 5% all the way up to 50% depending on the particular product and industry, amongst other factors.
Sales commissions are usually paid as bonus on the employees paycheck. Some businesses will give lump sum commission bonuses at the end of the month or quarter. Again this depends on the type of business in question.
A 10% commission means that for every dollar spent on a sale that is made by a employee, that employee will be given 1/10th of that sale as a bonus. For example, if a salesperson is offered a 10% commission for selling a pair of $100 sneakers, they will receive $10 extra in addition to their salary.