How to Split Commissions Without Splitting Heads

Lead Generation: 15%Watching two salespeople fighting over who gets what in a split sale is worse than listening to two male cats having a territory fight in the middle of a hot August night. You don’t want to hear it, and you certainly don’t want to be in the middle of it. The bigger the commission, the louder and longer the fight.

These disagreements often leave a bad taste in everyone’s mouth and sometimes results in a good salesperson leaving the company feeling bitter and hard done by. It doesn’t have to be that way.

The Cause of the Problem
In my view, the cause of the problem lies squarely on the shoulders of the sales manager or whoever manages the salespeople.

The first cause is failing to realize the highly competitive nature of some salespeople. Some salespeople are driven, and I mean driven, by the want or need for money and to them, their commission is all-important. This is how they keep score and when you tamper with their income, you’re interfering with the game.

Not all salespeople are driven by the all-mighty dollar but, because a good portion of their take-home pay comes from commissions, they become annoyed, if not angry, when they’re not paid what they expect to be paid.

The second cause is not dealing with this potential problem before it comes up. If you have house accounts, accounts where commissions will be split with the house, or situations where more than one salesperson may be involved in a sale, the rules need to be spelled out in advance. That way the salespeople can manage their expectations appropriately.

The third cause is having a compensation plan that is 100 percent commission or one that is top heavy with commission. In other words, all or a major portion of the salesperson’s income is at risk (commission). You’ll have less of a problem if your people are on a high-base, low-commission plan.

When to Split a Commission
My first bit of advice is to avoid split commissions if you can. Don’t go down this path if you don’t have to because there is no easy route through the maze and you don’t want or need the aggravation. Having said that, there are some situations where a commission split is warranted.

A split commission is appropriate if you have a situation where two or more salespeople will be involved in a sales opportunity. A split commission is probably not appropriate if you try to split the commission between a salesperson and non-sales personnel such as technical support, telemarketing, customer service, etc. While these people are important to the sale, it’s the salesperson who is on the firing line and whose income depends upon making the sale.

A split commission may be appropriate when a salesperson is working on a house account and is doing more of an account maintenance function rather than the classic sales role, although this is usually a situation that warrants a reduced commission rather than a split commission.

How to Split
There is no easy answer to this question but I have some ideas to share with you.

The key is to divide the sale into some natural-occurring events or situations and then apply an appropriate percentage to each part.

For example, let’s assume the sale can be broken into four parts: lead generation, qualify and sell (I call this Probe and Prove), close, and post-sale support.

If a salesperson finds the opportunity, qualifies it and makes a sales presentation, closes the sale, and the product is delivered to his area where he is expected to provide after-sale support, then he gets a 100 percent commission.

If, on the other hand, let’s suppose Salesperson One finds a lead and passes it on to Salesperson Two who then qualifies, presents and closes the sale. The end product is delivered to Salesperson Three’s area and he will be responsible for the after-sale support. Now we have a three-way split on our hands.

Who Gets What
Now it’s a matter of deciding what percentages to assign to each portion of the sale. One way is to simply divide the commission into four equal parts, giving a 25 percent portion of the commission to Salespersons One and Three and the remainder (50 percent) to Salesperson Two.

Rather than simply dividing the commission in equal parts, it makes more sense to assign percentages in proportion to the effort or difficulty involved. For example, a better split might be:

  • Lead Generation: 10%
  • Probe & Prove: 50%
  • Close: 20%
  • Post-sale Support: 20%

A typical three-part sale might be:

  • Lead Generation: 15%
  • Probe & Prove: 70%
  • Close: 15%

These percentages are certainly not cast in stone but are presented here as guidelines. You’ll have to do the rest of the dirty work yourself. You may find that a typical split-commission sale only has two parts or perhaps as many as five to eight.

Do It Now
It doesn’t matter how many parts you decide to divide the sale into. What matters is that you decide how many parts and what percentages you assign to each part before you have to actually split a commission.

If you wait until you have a bunch of burly salespeople standing in front of you with their hands out, all wanting more than their fair share of the commission for a big sale, you’re in trouble, big trouble.

If you’re going to have split commissions, make them part of your compensation plan. Spell out the details up front so everyone understands them.

The last thing you want is a catfight in your office.

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8 Responses to “How to Split Commissions Without Splitting Heads”

  1. Deb Shechter August 9, 2013 at 2:57 pm #

    Helpful article and right on point.

    • Brian August 9, 2013 at 3:33 pm #

      I’m pleased that you found the article of value.

  2. Ricky August 30, 2013 at 9:24 am #

    Excellent article – extremely helpful. Thank you.

  3. Bonnee April 3, 2014 at 2:31 am #

    I am the lead salesperson in a showroom environment that sells high end hearth and leisure products. I’ve been in this position for two years with no formal sales training and no on site sales manager. We only have two sales people at this location. The second sales position has turned over three times in the two years, hence I am the lead sales person based on longevity, highest volume in the company and just because I appear to be the only consistent factor in this situation. Each time we have turnover I review the way leads are divided, commissions are split, etc with the new sales member. Because we have no on site supervision or a sales manager in the company we are left to work things out amongst ourselves. Our most recent replacement in this second sales initially agreed to the guidelines I and the previous co-sales person had developed and implemented. However, when one of these “agreements” doesn’t fall to his benefit he wants the rule changed. I’m not opposed to doing things different but I am opposed to the constant desire he has to keep flipping the rule each time it would benefit him to do so. I met with my supervisor today and am asking them to create corporate standards for lead divisions, commission splits, etc. We have a meeting scheduled this week to sit down together and hammer out the code of standards. I’m searching online for others who may have developed written policies such as these but am not having much luck.is there information you can provide me, a book you can suggest or the correct terminology I should be googling to find resources? Challenges to date include what counts as a genuine lead, how to divide phone leads vs walk ins, splitting commissions when both associates have documented efforts on a closed sale, etc.

    I look forward to your wisdom, council and referrals for support.

    Thanks in advance.

    • Brian April 3, 2014 at 1:45 pm #

      Bonnee:
      It appears that you have already devised a number of rules to cover how commissions are to be split and how leads are to be divided, so my question to you is why reinvent the wheel? Why not ask management to formalize the rules that evolved through necessity into “policy”. Once a policy is in place and someone disagrees with the policy, they can lobby to have the policy changed. Unlike rules (that are meant to be broken), policies tend to be cast in stone and can’t be changed on a sales-by-sale basis.

      Finding information on split commissions will be a challenge and there is no definitive answer. Each situation is different and requires its own specific policy. In addition to my article on split commissions that you’re already read, you might find some value from my observation on page 29 or my eBook, “Simplified Compensation Plans That Work.” I’ll email you a copy.

      Apart from that, I’m available for hire as a consultant to assist in working out this challenge. 🙂

      Good luck.

  4. Lindsey Dvorak April 11, 2016 at 9:39 am #

    This is great, I would love your thoughts on “referral” fees or referral/introduction commissions.

    • Brian April 11, 2016 at 10:32 am #

      Thanks for the comment Lindsey. I used to offer two levels of referral fees. One level, the smaller of the two, was for getting a name or a lead that I needed to “sell” and ultimately closed, and a second, larger referral fee, for those situations where the referee “pre-sold” me to the point that all I basically had to do was close the sale. In my case, the referral fees were 5% and 15% respectively. Your fee amounts will undoubtedly be different.
      Brian

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