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 at trip but 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 have 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 all the way through. I have found it to be fair and easily understood by employees.

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

The steps I outline below are admittedly old-school and you could create a spreadsheet that would deliver the results quicker.

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

  1. Make a schedule for the month. Don't just say for example, John works 120 hours if he doesn't work weekends and there are five. Enter each employee, 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 individual employees 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 employees name and the amount they are expected to sell that day. (Notice the italicized amounts under each employees 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 correct dollars per hour they should have sold.
  8. If the store hit the store goal, you reward those who went over their goal by whatever you have promised whether that is a % of the increase or other bonus. If the store missed the goal, even if an employee "hit" their goal, no bonus. Its great to have superstars but you need the crew to hit the goal in order 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 thing that make this valuable:

  • Nothing happens unless they hit the goal and
  • You only pay out based on actuals, but set the bar higher in case 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 to not include hours for stock people who have no ability to 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 3 days a week. To help minimize this, don't allow part-timers to only 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.