It isn’t a secret that sales reps want to earn as much as they can. But that isn’t going to be the case every time. Typically, sales reps’ earnings include base salary plus commissions. The compensation might vary between organizations, and some would have a cap on commissions, which eventually restricts how much reps can earn. This might not be preferred by reps when they can push their earning limits with uncapped commissions.
Now, let’s look into what uncapped commissions are, and how they work.
What are Uncapped Commissions?
In uncapped commissions, there is no cap on the commissions your reps earn. The more they close deals, the higher their commission will be.
For example, if your reps hit 200% of their quotas, they’ll be incentivized accordingly. It all depends on how skillful they’re in closing deals.
This can be really effective because there is no limit on reps’ earning potential, and they can go beyond what they can do to use it to the fullest. In fact, there isn’t a better motivation factor for reps than financial rewards.
Capped Vs Uncapped Commission
While the basic difference between the two commission types is the limit on how much reps can earn, there’s more to it as well. When a company offers uncapped commission, the base salary can be much lower than what’s offered for a capped commission plan. The reason is, reps are expected to earn as much as they can through commissions only. Also, the capped commission can have other earning opportunities, like stock options, or a bonus at the end of the year. These options may not be available when an uncapped commission is in place especially in old-school sales firms.
As mentioned before, uncapped commissions are used for the reason that they can truly bring out the best from salespeople. It can be a win-win situation for both the company and the reps. When commissions are capped, your reps may postpone closing deals to the next quarter, where they can actually get commissions for every closure. This may lead to a decrease in revenue for your business and missed quarterly goals, which you eventually don’t want to happen.
Why You Shouldn’t Include ‘Uncapped Commissions’ in Job Descriptions?
Commissions are uncapped in general. They don’t have to be specifically mentioned, which will only create suspicion on the organization to the reps. It can also mean that they’ll be underpaid since you haven’t clearly mentioned what reps in your company earn.
Here’s what you can do instead. Include proper numbers in the job description. Let the candidates get a picture of their pay structure. State the on-target earnings, which will include the base salary & commissions, and other perks like insurance, reimbursements, etc. Your reps should know what’s the average commission that reps earn in your organization.
Uncapped commissions are indeed powerful in bringing out the best in your reps, and helping your organization reach your goal. If you expect your reps to be at their best every day, then uncapped commissions are the way to go.
Also, get to know how Everstage can help you calculate commissions easily, no matter how complex the calculations are. Book a demo now.