Commission

Posted in Marketing and Strategy Terms, Total Reads: 667
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Definition: Commission

Generally speaking, a commission is a fee given to any agent for performing the desired services. In marketing terms, it is the remuneration giving to a salesperson in exchange of the sales made by him and is and a very popular tool used by organizations to motivate their sales personnel to try and maximize the sales.


Commission is generally calculated as a certain percentage of the sales made implying that a salesperson’s income would depend on the amount of sales made by him which would in turn help the organization to grow thereby taking care of the principal-agent problem by aligning the interests of the salesperson with that of the organization. A salesperson’s remuneration may either consist of a fixed and a variable component (based on the sales) or may entirely be commission based (also known as straight commission).


However, commission differs from bonus in the sense that while bonus is a fixed incentive amount given for achieving a specific target, commission is communicated as the piece of the action (say percentage of revenue) e.g An insurance company offering a commission of 2% to its agents for the selling a policy.


 

 

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