Sales Commission Glossary

Vignesh Mallya · 21 April, 2021

Stop looking! The mother of all glossaries is here.

A perfect place to learn sales jargon. What did you say? You know almost all of them? Unlikely. Yes, you know 73% of them. But what if you meet the other 27%? A panic attack is a possibility. Just saying.

So, use this glossary to learn what you don’t and set a stellar sales compensation plan.

Commission

A certain sum paid to a person by his employer in return for making a sale or doing a specific service.

Example: Bill gets $170 for selling $2000 worth of goods. That $170 is his commission for providing his service.

Compensation Management

It means designing a well-rounded compensation structure to provide monetary benefits to your employees.

It can be salaries, incentives, bonuses, spiffs, etc.

Sales Incentive

A sales incentive is a financial or another type of reward given to salespeople for selling a certain amount of goods or services.

Example: Jessie will get $27 for every 10 sales he makes.

Incentive Plan

Incentive plans are strategies for keeping employees motivated for their work and rewarding them for meeting or exceeding specific organizational objectives. 

Rewards can be the company’s stocks, bonuses, sales commission, etc.

SPIF (or spiff)

It stands for Sales Performance Index Funds.

It’s a short-term incentive given to salespeople to push the sale of a product or service or drive the sale in general.

It is given apart from incentives and commissions.

Example: $347 to everyone if we sell 550 products this month.

Bonus

A sum given to a person on top of his/her wage.

Usually, it’s given for good performance. But some companies also give out bonuses when they earn a good profit or when their market cap increases.

Sales Quota

It’s a particular target that sales reps have to achieve within a timeframe.

Example: Jeff has to sell 39 subscriptions this month.

Sales Goals

These are targets a company sets that have an impact on its profits and revenue. Goals can be sales targets, lower churn rates or even motivating the sales team.

Examples: 4% reduction in sales cycle length, $500,000 revenue increase per quarter, etc.

Decelerator

It means lowering the commission rate if the quota or a certain percentage of quota is not achieved.

Example: Chris has to sell $5000 worth of products. He has to achieve at least 80% of his quota to earn a 10% commission. If not, the rate will go down to 7%.

Accelerator

An incentive in which a salesperson is rewarded if they have exceeded their quota.

Example: Tom will get a 7% commission up to $2000 sales. If he sells anything beyond $2000, he’ll get a 9% commission.

Clawback

It means recovering the money already paid to an employee.

It can happen when a buyer returns the product. Or when an employee breaches some terms of the contract.

Incentive Freeze

In this, the system freezes all calculations at the end of the incentive calculation period. That could be a month, quarter, or year depending on the frequency of incentive payout.

Any changes to the CRM, new invoices collected, or other changes after this will have no impact on the incentive calculation for that period.

Deal Sharing

It means sharing the commission between reps who worked on a deal.

But it’s unclear which rep should get how much credit and eventual commission for that deal.

It can depend upon their understanding or goodwill. Or it could depend upon the nature and volume of product sold in that deal, the region of the buyer, etc.

Incentive Override

It means managers sometimes go above and beyond the system-generated incentives for reps and reward them with additional incentives.

It happens when managers feel a deal is more valuable than others.

It can be used positively or negatively

Individual Contributor (IC)

Someone whose variable pay is based solely on their performance, unlike managers whose variable pay is based on the team’s performance.

Sales Representative

A person who sells products or services for a company. In short, they are called sales reps.

They can sell to individuals or companies. They can also sell in-person, like at retail shops.

Sales Development Representative

A person who qualifies an inbound lead and converts them into meetings for the account executives' team to handle.

Business Development Representative

A person within the sales team tasked with bringing new clients through cold calling, cold emails, etc.

BDR is the first person a client talks to.

Account Executive (AE)

A person who handles a customer's current relationship on a day-to-day basis.

Solution Engineering

The people who are responsible for supporting the AEs with the correct solution design and suggestions to close the deal.

Revenue Operations

It’s a team that coordinates the working of sales, marketing, and customer success operations.

They are responsible for the operations throughout all revenue-generating teams.

Customer Success

They are responsible for ensuring a customer keeps paying and buying more via upsells and cross-sells.

Some companies call them account managers (AMs).

Account Manager (AM)

A person in charge of managing sales and relationships with specific customers.

Revenue Target

The ideal revenue figure the company wants to achieve.

Example: Amazon wants to make $893 million in revenue this year. $893 is its target revenue.

Attainment

A percentage of sales achieved concerning a sales target.

Example: Robin’s quota for Q3 is $10,000. She has reached $3000. Her attainment is 30%.

Roll-up

It refers to sales credit rolled from one person to another based on their reporting structure.

It occurs when one receives credit for a sale and reports to a manager who also receives credit from the same sale.

Recurring Commissions

It’s the money a salesperson receives whenever his/her referrals make any purchase.

Flat Rate Commissions

A fixed commission received by a person regardless of the purchase price or any discounts.

Example: Peter gets a flat 7% commission for selling deodorants for $15 each. He’ll continue to get a 7% commission even if the price drops to $12 each.

Tiered Commissions

A type of commission in which reps get an additional commission if they sell a specific amount or more than that.

Example: Jonah sells $50,000 in revenue. He’ll get a 7% commission. If he sells $100,000 in revenue, he’ll get a 9% commission.

Marginal Commissions

It’s similar to the revenue structure. But it also considers every transaction’s profit including the sale price and any involved costs.

Example: You sold a product for $90,000. The expenses involved in selling it were $20,000. $70,000 is the profit on that sale. You get a 5% commission. So, you’ll earn $3500 in commission (5% of $70,000).

Event-based Commission

A commission given when you want your employees to prioritize customer relations over revenue or profit.

Ramp-up Period

It’s the time that a new salesperson takes to reach his/her full efficiency.

Example: Rachel is hired on 1st July. By 30th September, she is selling $10,000 worth of products compared to $500 when she was hired. 1st July to 30th September is her ramp-up period.

Payroll

A company’s process of paying its employees for a specified time.

Draw

It’s an advanced payment sales reps can receive as part of their compensation plan.

Usually, it is paid from expected future commission earnings.

On-target Earnings (OTE)

It is the amount of money a salesperson expects to earn s/he achieves their quota.

Example: Your base salary is $10,000. You get a 10% commission. So, your OTE will be $11,000.

Quota-to-OTE Ratio

It’s the ratio between OTE and ARR.

Example: Say, a rep’s quota is $500K ARR. His/her OTE is $100K. Here, the quota is 5 times the OTE.

Average Recurring Revenue (ARR)

The revenue a company expects to receive from its customers in exchange for providing them with goods or services on an annual basis.

Example: A company purchased a subscription of $20,000 for 4 years. Its ARR will be $5000/year.

Annual Contract Value (AVC)

The annual average revenue per customer contract is called Annual Contract Value.

For example, if you had one customer who signed a 3-year contract for $36,000, your ACV is $12,000. If you have 100 customers on a monthly plan at $1000 per month, your ACV is also $12,000.

Indirect Compensation

Indirect compensation is any benefit to the employee that doesn’t come in the form of cash.

Example: Your company gives you a work laptop, smartphone, etc.

Key Performance Indicators (KPIs)

A quantifiable value that shows how well a company is doing in reaching its key objectives.

Example: Brand awareness, customer retention, sales target, etc.

Variable Compensation

An incentive based on an employee’s performance given on top of the base salary for motivating and retaining employees.

Example: If you sell 30 subscriptions instead of 25, you could get a 2% additional commission.

Sales Process

A series of steps taken by a salesperson to move a potential buyer from the early stages of awareness to a closed sale.

Sales Activity

All the actions, sales practices, and strategies performed by sales reps and managers daily to move prospects and customers through the sales process

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