Explain the merits and demerits of commission
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Advantage: Increases Sales
The primary reason companies use commission incentives is to motivate sales employees to work harder, more effectively or more efficiently to convert sales. The motivational impact can vary, but those salespeople driven by income tend to go after more prospects and work more diligently to get sales if pay is connected to success. Employees often take salary pay for granted. However, knowing that extra effort or results means more pay can motivate.
Advantage: Pay Tied to Revenue
A financial advantage with commissions is that you know you only pay on sales conversions. Thus, you typically don't incur the commission costs unless you also get the revenue that comes with the sales. This factor is why many sales-intensive companies pay on straight commission. Managers can effectively control labor costs or ensure optimized selling efficiency by only paying workers for the results that they produce.