Uncapped commissions are every representative’s dream. They open the door to unlimited earnings on deals closed and are a key motivator to salespeople. This propels them to boost their performance and close high-value deals that increase their chances of getting higher percentages. In this blog, I’ll walk you through everything you need to know about uncapped commissions along with the difference between capped and uncapped commissions. I’ll also cover the benefits and a few reasons why you should not mention them in your job descriptions.
It’s every salesperson’s dream to earn as much ever they can on really sizable deals. However, that can’t always be the case.
Compensations with caps usually restrict how much a representative can earn. This isn’t preferred by the representatives as they want to push their earnings more, as they close more high-value deals.
In this blog, I’ll highlight what an uncapped commission is and its benefits. I’ll also cover six major reasons for avoiding it in your job descriptions.
What is an Uncapped Commission?
Uncapped commissions are a structure where there is no limit on the amount of commission a salesperson can earn.
This type of commission structure is a popular incentive for salespeople. It provides the opportunity for unlimited earning potential based on their sales performance.
Here’s a quick comparison between uncapped and capped commissions:
When designing a sales compensation plan that includes uncapped commission, it's important to anticipate all potential outcomes.
Since there's no limit on the variable portion of compensation, it's crucial to have a clear understanding of each salesperson's maximum potential earnings.
This requires going beyond the standard on-target earnings (OTE) calculation and estimating the highest amount each employee could earn.
Once you have this information, you can create a compensation plan that fits your company's needs.
If you want to incentivize your sales team further, you might consider including accelerators in your plan. Conversely, including decelerators could help ensure that underperformers still receive a minimum level of compensation.
How to Calculate Uncapped Commission?
Let’s understand using this example:
A salesperson has a base salary of $500,000 per year. They earn a commission of 10% of the sale price for every sale they make.
Now, if there’s no cap or limit to the amount of commission they can earn, their total earnings would be $500,000 (base salary) + $50,000 (10% commission) = $550,000.
This can motivate them to make more sales, resulting in higher total earnings.
So how does it compare to capped commission?
If a salesperson makes $500,000 in sales in a year, their total earnings would be $500,000 (base salary) + $10,000 (10% commission capped at $10,000) = $510,000.
Now, let’s see what are the advantages of having uncapped commissions at your workplace.
Top 5 Benefits of Uncapped Commission
Here are the best five benefits of using uncapped commission:
1. More revenue for the company
Salespeople are motivated by the potential for unlimited earnings. To increase their commissions, they’re likely to work harder and sell more – resulting in increased revenue for the company.
Salespeople also have the flexibility to prioritize their sales efforts and increase earning potential.
How?
They can choose which sales to focus on and how much effort to put into each sale to maximize their commission earnings.
Additionally, uncapped commissions increase salesperson morale and reduce turnover, leading to better retention and cost savings for the company.
2. Unlimited earning potential for salespeople
The biggest advantage of an uncapped commission structure is the unlimited earning potential it provides to salespeople.
How is this helpful?
This means they can earn as much as they want based on their sales performance, which can provide a strong motivation for them to perform at their best.
3. Drives employee growth
Uncapped commissions can encourage salespeople to prioritize their efforts on high-value sales, which aligns with a company's business goals. This helps to drive growth and profitability for the company.
Additionally, salespeople can feel motivated to provide better customer service and build long-term relationships with clients. This leads to repeat business and increased commission earnings.
4. Improves employee retention rates
Since uncapped commissions directly reflect the salesperson’s performance, it can improve their morale as they start earning more.
It also increases engagement and motivation, thereby reducing turnover – leading to better retention and a more positive workplace culture.
Additionally, reduced attrition rates translate to a decrease in costs associated with hiring and training new employees. This boosts talent retention, density, and improved bottom lines for the organization.
5. Creates a transparent and rewarding work culture
An uncapped commission structure allows leaders to demonstrate transparency and fairness in their compensation policies. Doing so builds trust and improves relationships between leaders and salespeople.
Moreover, uncapped commissions provide a clear and direct recognition of salespeople's performance. This motivated your salespeople to perform better and to be in the limelight.
Plus, working closely with the organization's goals inculcates trust and collaboration.
6 Significant Drawbacks of Uncapped Commissions
Sure, uncapped commissions can be a powerful motivator for some salespeople.
However, they also come with a range of potential drawbacks and should be carefully considered before being included in a job description.
Let’s take a quick look at some of them:
- Risk of overpromising: An uncapped commission structure may not always be feasible or sustainable. Making promises of unlimited earning potential could come back to bite a company if sales targets are not met.
- Cost concerns: Uncapped commissions can be expensive. The cost of sales commissions can add up quickly if salespeople are performing well.
- Unbalanced workloads: Some salespeople may be more successful than others. This leads to uneven workloads and can result in a potentially demotivating effect on underperforming salespeople.
- Ethical concerns: Uncapped commission structures can create incentives for salespeople to engage in unethical or aggressive sales tactics to maximize their earnings.
- Can be demotivating for some salespeople: Some salespeople may not be motivated by the prospect of unlimited earning potential and may prefer a more structured and predictable compensation plan.
- Lack of clarity: An uncapped commission structure can be difficult for salespeople to understand. This creates confusion about what is expected of them and how they will be compensated.
Instead of wording as uncapped commissions on your job description, you can use the word “on-target earnings”.
What’s on-target earning?
On-target earnings (OTE) are the average money representatives can expect to earn from their base salary in addition to the potential commission. It also includes all the benefits given to the representatives.
For more information, refer to our detailed guide on on-target earnings.
Wrapping Up
When considering an uncapped commission structure, it’s important to weigh the benefits against the potential drawbacks and make an informed decision that aligns with a company's goals and values.
Additionally, the success of an uncapped commission structure can depend on a variety of factors, including the industry, the target audience, and the salespeople themselves.
Refer to the points mentioned above to implement an effective uncapped commission structure.
