How to Balance Floors and Ceilings in Commissions

by | Aug 31, 2021

Floors and ceilings aren’t just the manmade structures above and below you. They are also tools often used in commission structures.

In order to spur salespeople into action, many organizations introduce floors. Employees must meet this minimum performance requirement to earn any commissions. On the other end of that, employees can max out their earnings if they hit a ceiling. Once they meet that maximum sales threshold, they cannot earn any additional commissions.

When it comes to sales commission plans, setting floors and ceilings has both benefits and drawbacks.

Both methods come with benefits and drawbacks depending on your company’s goals. If you’re considering implementing a floor, a ceiling, or a combination of the two, we’ve got a few tips.

Setting a Commission Floor

For sales organizations that need to reach a bare minimum revenue target, commission floors can help. When applied to a compensation structure, a floor requires salespeople to hit a minimum target to earn any commission.

As an example, a solar panel salesperson has the potential to earn 25 percent in commissions in a quarter. However, the company maintains a floor requiring the salesperson to reach 35 percent of their quota to begin earning. This ensures the company will not have to pay out commissions if it cannot earn enough revenue.

In some cases, organizations apply decelerators to employees who don’t reach the minimum level. This is a way to incur repercussions for salespeople who aren’t performing.

Floors generally come into play for more senior roles. Managers and other sales executives may be more likely to encourage teams to sell if they face negative consequences.

Place a Ceiling on Commissions

When sales organizations need to cap commissions for their employees, a ceiling may be the answer. With a ceiling, an employee can only earn so much in commissions even if they outperform their quota.

For example, an employee reaches their max possible earnings when they’ve hit 25 percent over their sales quota for a quarter. Even if they continue selling beyond that performance, they cannot earn additional commissions. Implementing this method gives businesses the ability to forecast exactly how much commissions they’ll pay even if their salespeople far exceed targets.

Ceilings generally come into play for organizations that have naturally aggressive and motivated salespeople. It can also encourage a sales team to work together rather than try to outperform each other in order to gain increased pay. To boost performance even further, an accelerator can be used to entice salespeople to continue selling between their quota and the ceiling.

When implementing either floors or ceilings, be sure to clearly communicate the details to every commissioned employee. That way there’s less chance of disputes or questions about earnings.

If you’ve incorporated floors and ceilings into your commission structure, we can help you automate those calculations. Contact us for more info or schedule a free demo and we’ll show you how it works. We look forward to setting your floors and ceilings — and all your commission structure requirements in between.

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