Affordability

• According to Alan Rigg, author of "How to Beat the 80/20 Rule in Sales Team Performance" and "How to Beat the 80/20 Rule in Selling," there is no hard and fast rule for determining how much net profit to pay as commission. Really, a business owner or leader has to decide how much she can afford to pay and still operate a profitable business. The nice part about a net profit basis for commission is that costs and overhead have already been deducted -- a business is sharing pure profit. That means a company won't end up in the red while a salesperson is profiting.
  
  

Livable Wage

• Companies need talented salespeople who are invested in their work and produce results. To have that, a sales job must offer compensation that is not only livable, but attractive. Otherwise, talented salespeople will find other jobs. Because businesses differ in their revenue and profit structures, there isn't one percentage that can guarantee this. An owner or manager has to look at commissions in context of the realistic annual pay it represents. For example, in real estate, 6 percent is the standard commission. If the average sale is $500,000 and a brokerage pays its agents 50 percent of net profits -- which are typically 75 percent of the total commission -- then an agent gets an average of $11,250 per sale. If an agent can realistically make 10 or more sales a year, then this commission structure is likely viable. However, if three or four sales is the most an agent can expect, the brokerage may find itself with a turnover problem.
  
  

Negotiation

• Rigg says developing a net profit commission plan usually requires negotiation. It's all about what a salesperson will accept and what a company is willing to pay. The only proviso Rigg gives is to be consistent among salespeople. Having different salespeople with different commission plans can cause resentment and frustration, which can ultimately sink morale and destroy a sales team.
  
  

Revenues

• When trying to get a feel for what amount of net profits can sustain a salesperson or will be competitive in a given field or industry, it can help to look at revenue-based commission plans. For example, Nordstrom department stores pays its sales staff a 6.75 percent commission on revenues. That means top performers who sell $1 million per year can earn $67,500 in commissions on top of their hourly wages. According to the Seattle Times, this can produce a total annual income in excess of $100,000. For a retail seller with commissioned salespeople competing for customer service-oriented employees like Nordstrom's, it may help to figure out what percentage of net profits will allow workers to earn the same amount or more than a competitor's revenue-based plan.