How To Create A Commission Structure For Retail Salespeople


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I believe in commissioning retail salespeople.

Whether that means employees get an hourly rate and a percentage of sales they make, a bonus at the end of the month, or a chance to win a trip, it is performance-based pay.

Call it what you want, but the best bosses share the wealth, not hoard it.

Sandy, a Retail Doc Fan page follower, sent me this message: "I'm looking to change our commission structure. Currently, we pay 3% of each sale. Considering doing it off of store profit. Any suggestions would be helpful."

Paying a flat commission to your retail salespeople on everything means it is a given. There are no goals to achieve, so it can lead to employees feeling they are "entitled" to it rather than having to earn it.

Some stores only commission high-profit items or create various levels to minimize paying commissions on staples or low-margin, high-sale items.

I'm sharing what admittedly could seem complicated, but read this all the way through. I have found it to be fair and easily understood by employees.

The objective is to develop a reasonable store goal [See The Retail Doctor's Guide to Growing Your Sales] and then reward those who go "above and beyond to achieve it."

This is the most basic method, and the steps I outline below are admittedly old-school yet tried and true; you could create a spreadsheet to deliver the results quicker.

Here's how to create a commission structure for your retail salespeople:

  1. Make a schedule for the month. Don't just say that John works 120 hours if he doesn't work weekends, and there are five. Enter each employee and each shift's total hours to the best of your abilities.
  2. Total up each employee's hours for the month.
  3. Add all employees' total hours, then multiply the total hours by 90%. This is the minimum amount of hours you expect to use for the month and gives them a higher personal per-hour goal to shoot for.
  4. Divide your total store goal by that figure.
  5. Multiple your employee hours by that number to arrive at the amount every employee (who could sell something)'s monthly goal.
  6. Then, each day your employees work, make a goal sheet with each employee's name and the amount they are expected to sell that day. (Notice the italicized amounts under each employee's name in the figure.)
    retail goal setting for employees
  7. At the end of the month, you use actual figures for total hours employees worked to arrive at the correct dollars per hour they should have sold.
  8. If the store hits its goal, you reward those who exceeded their goal with whatever you promised, whether a % of the increase or another bonus. If the store misses the goal, even if an employee "hits" their goal, there is no bonus. It's great to have superstars, but you need the crew to hit the goal to share in the increased business. Otherwise, you just end up paying certain employees more because they clerk more or hog the floor from the others - neither of which builds sales.

Here are two things that make this valuable:

  • Nothing happens unless they hit the goal and
  • You only pay out based on actuals, but set the bar higher if someone quits and you need to train someone new.

Those who consistently hit goal deserve to stay; those who consistently miss don't. Even if it's your son or significant other!

Again, a key is not to include hours for stock people who cannot sell anything.

Yes, you'll get some employees who'll say it isn't fair they work "nights" or "mornings" while others work limited hours on weekends. They can only move the needle of sales if they are in the store at least three days a week. To help minimize this, don't allow part-timers only to work 10 hours a week. Otherwise, your business is a distraction, not a destination for their attention. Make sense?

Finally, whatever you do to reward employees' sales, pay it out as quickly as possible to keep them motivated, preferably within a day or two of the end of the month. Using this commission system isn't the only way to produce sales, but it clearly sets boundaries for your crew to move the needle higher.