What’s the Difference Between Commission and Incentives?

by: Luke Kreitner November 19, 2018

Commission and incentives aren’t the same. Not only are commission and sales incentives awarded for different reasons, each has a unique mental impact on the receiver.

Now, what exactly are commission and incentives, and how are they different?

Commission: Always in cash form, commission is an income payment. It's a percentage of a product or service sold. Incentive: An amount of money or non-monetary of reward to motivate someone to achieve something.

Commission and incentives have their unique roles in sales motivation, but not everyone thinks so.  Many sales managers and directors believe commission is motivation enough for a job well done. That’s not the case. Many studies show that incentives boost motivation in sales professionals. This is especially true when their exceptional work is met with exceptional rewards.

Sales jobs usually come with little to no base salary. And while commission ties reps to the sale and pay out based on a portion of it, commission is no incentive. Salespeople sell to fatten their paycheck. But soon the process of making a sale and earning commission becomes routine.

Sales rewards break through the routine, pushing sales teams to go beyond their norm. Why? Because sales incentives motivate a variety of behaviors, not just making the big sale that gets the big commission.

Sales Commission and Incentives

However you define commission and incentives, you must make it clear to everyone in your organization which is which. There should be a consistent understanding of how and why each one is given.

How can you do this? Develop a tiered sales incentives that align with your company goals. Then, align those goals with tiered rewards - VIP rewards for high-achievers and easy-to-earn rewards for everyone else. Tiered rewards help sales teams understand the essential differences between their commission and the sales incentive program.

A commission is a fixed monetary payout a salesperson knows they'll get after a sale. Because of commission’s contractual nature, salespeople simply don’t see it as a “bonus” on top of their base pay. Instead, it’s an expected part of checking off boxes on their job description. This is not to say that commissions don’t increase sales. They can. But commission drives sales differently than incentives. Commission gives sales reps a goal and tells them to meet, but not exceed, that goal. Together, commission and incentives give you a way to holistically motivate your sales team.

Unlike commission, sales incentives can be awarded at any time and for any reason:

  • As part of a sales promotion
  • Getting multiple warranty registrations
  • Upselling high-margin, maintenance products or services
  • Going above and beyond the call of duty
  • Acing training courses
  • Earning specific certifications
  • And more

Incentives motivate teams holistically. This means that sales rewards not only influence quotas and sales goals. They also drive the behavior you want to see culturally.

Commission and incentives should be seen differently. While commission can motivate sales teams to work toward a specific goal, they quickly lose their luster.  Monetary rewards, no matter how significant, eventually fail to be an effective motivation tool. Why is that? Many studies have shown that commission dollars often become money to pay bills. Sales incentives go where commission can't, offering salespeople a chance to redeem something memorable.

How sales incentive programs can help you sell more stuff.

Create buzz and stir friendly competition with a sales incentive program. Sales incentive programs simplify setting up, managing and marketing sales promotions. When salespeople know there's something in it for them, they share and talk about the sales promotion and their rewards. This motivates other team members to move beyond their norm in future promotions – and brag about it! – because they want a reward. Doing the same with commissions? Don't - it's often seen as tacky or ill-form.

For top-performing salespeople, travel incentives challenge them to be even better and helps retain them. So offer them travel incentives. That way, you’ll make a lasting impression with top-tier performers and drive up their motivation and loyalty to your company.

Commission gives structure, but incentives offer sales leaders flexibility. Based on the sales promotion or goal, you can offer different incentive rewards that fit the goal achieved. If you changed the commission payout, that would be bad news for leadership and the sales teams they manage.

So in summary,

Commission

Incentives

Usually given as a portion of a sale, commission is purely monetary. Because of this, commission is an ineffective tool for motivating salespeople long-term. Incentives can be cash or non-cash items. However, the most effective incentives are special items that people can splurge on, guilt-free.
Because commission is a lot like a paycheck, it's usually best not to brag about getting a bigger commission payout. Incentive rewards are exciting for the entire team. So much so, your salespeople can brag about them!.
Commission is contractually enforceable because it's a part of most employee agreements. So altering the amount will invite unwanted assumptions. Incentives are flexible. No matter the time of year or goal, your sales team can be motivated to do more.
Salespeople often see commission as a routine part pf their compensation. It also helps them understand how their output ties to their income. You can reward salespeople at any time and for any reason. Because of this, incentives have a bigger impact on company culture and revenue.

Commission connects income to output, showing sales reps how what they do affects their paycheck. Incentives go further,  motivating sales teams to go beyond it for greater rewards. Ultimately, this puts your company in a better position to beat sales and business goals. A healthy balance of commission and incentives creates increased profit margins, a more motivated sales team, and a more effective sales process.