Commission-based
Commission-based describes a compensation structure where an individual's or entity's earnings are directly determined by the volume of sales, services provided, or deals closed. The payment is a percentage (the commission) of the revenue generated. This incentivizes performance, often found in sales, real estate, and financial services. The percentage can vary significantly depending on the industry, product, or service. The structure aims to align worker effort with company success, rewarding productivity and high performance. This often creates a competitive environment, driving individual initiative but can also lead to fluctuations in income depending on market conditions or individual performance.
Commission-based meaning with examples
- Sarah, a real estate agent, operates on a commission-based system. Her income directly reflects the value of the homes she sells. A higher volume of sales, or selling higher value homes, translates to more earnings, incentivizing her to work harder to secure deals and achieve more.
- The sales team at the tech company is motivated by a commission-based plan. Each sale of their software yields a percentage of the contract value. This motivates aggressive outreach and efficient closing of potential customers, directly affecting their income.
- As a financial advisor working on a commission-based model, John receives a percentage from each investment transaction. He needs to acquire new clients and manage existing portfolios effectively to maximize his earnings, ensuring his financial stability.
- Most insurance salespeople operate on a commission-based framework. Their income depends on the policies they sell to customers. They must focus on selling a high volume of policies, or high-value policies to increase their personal earnings and boost their career.
- Freelance graphic designers sometimes adopt a commission-based approach for their work. This would mean their payment is calculated as a percentage of their client’s profits from the project. This rewards success and may attract larger, more ambitious projects.
