Top Difference Between Sales Bonus, Commission & Incentives

Unfolding differences between sales bonuses, commissions, and incentives. Know when these three financial rewards are paid out and at what ratio.

The terms “sales bonus,” “commission,” and “incentives” might seem confusing due to their similar nature. While they share some common ground, they are distinct in purpose and application. But one thing is common between these three which is to motivate employees, retain them for longer, and value their efforts.

An organisation that pays all these three components in some shape, form, and extent often ends up retaining the most motivated employees.

Let’s clarify the differences and break down what sets a sales bonus, commission, and incentive apart.

Difference Between a Sales Bonus, a Commission, and an Incentive

Let’s explore the main differences between these three popular terms of financial rewards.

What is a Sales Bonus?

A sales bonus is a fixed cash reward that employees are promised to receive once they fulfill a given sales target. Most companies define this pay type as either a fixed sum or a fixed percentage of generated revenue.

For example, there can be two cases…

Case 1 – Fixed Sum

Suppose Steve, an MR sales rep is asked to cross sales of $40,000 and in return is promised a fixed amount of sales bonus of $2000.

Case 2 – Fixed Percentage of Predetermined Sales Milestone

Again if Steve reaches the sales of $40,000, he will receive 10% of the generated revenue, which would be $4000. 

💡When companies should pay “Sales Bonus”

Any product or field service business should pay a sales bonus when employees exceed the set sales targets and add to the business growth.

What is a Commission Pay?

Commission pay is another financial reward in which employees are paid a fixed percentage of the sales revenue they generate. This pay is either a percentage of total sales made or a fixed amount per sale. The more sales the sales team makes, the more commission they will get credited alongside their salary.

Sales Bonus and Commission – Don’t They Sound Similar?

People get confused because both of these industries’ standard terms seem similar in meaning. However, there are plenty of differences, as explained below.

Features	Sales Bonus	Commission Pay
Purpose	A financial reward is given for achieving specific sales targets or milestones.	Rewards tied directly to per sales made.
Structure	The amount is pre-determined and not tied to individual sales.	It is a percentage of sales revenue.
Flexibility	Can be decided based on team performance or overall company success.	It’s a fixed percentage of achieved sales.
Timing	Credited periodically, could be annually or quarterly.	Credited after each sale or maybe regularly.
Motivation	Motivates individuals and teams to achieve more growth.	Encourages more individual sales performance.
Example	Employees get a $1,000 bonus for exceeding quarterly targets.	Employees get a 5% commission on each sale.

What is an Incentive Pay?

Incentives are an umbrella term for financial rewards that are not just paid only when promised sales targets are met, it can be literally paid for any small to big positive impact an employee drives.

Those impacts could be:

• Promoting more product sales (like medical MRs promoting more medicine batches)
• Ensuring more up-sells and cross-sells, or selling goods with high margins
• Getting multiple warranty registrations
• Making duty calls more than the target
• Successfully completing upskilling courses and earning a certification (yes, some companies when you upskill).

Paying such an amount and reasons vary from company to company. Rewarding incentives aim to motivate and encourage employees so they strive for more.

Also, such payouts can be non-monetary. For top performance, employees can be reimbursed with trips, gifts, shopping vouchers, and even handsome bonuses.

How Incentive is Different from a Bonus? Are they the Same?

Both terms are often interchangeably used because, in a way, bonus is a subset of incentive. The similarity between these two is that they are paid separately from the salary and commissions.

So, how are they different?

Bonuses are paid once the employee hits their targets. Incentive on the flip side, is decided ahead of time and granted for events that bring positive impacts.

Features	Bonuses	Incentives
Meaning	A financial reward is given for achieving specific sales targets or milestones.	An amount paid out for any extraordinary performance rather than just sales.
Purpose	To reward sales achievements.	To encourage more performances in the future.
Timing	Awarded either quarterly or annually.	Awarded before or during the performance period.
Structure	Can be paid as a fixed amount or a percentage	Can be paid as more financial rewards, coupons, or redeemable points.
Flexibility	Tied specifically to sales performance only.	Can include non-monetary rewards also.
Predictability	Is quite predictable and announced in advance.	Not foreseeable and not shared in advance.
Examples	Year-end bonuses are credited for meeting sales targets.	A fixed sum or incentive trip to top performers.

How Incentives are Different from the Commission?

The commission pay is granted when the desired outputs as targeted sales numbers are achieved. It consists basically of tangible results. Incentives, on the other hand, are a way to motivate employees with financial rewards which can be in the form of bonuses, encashments, gifts, and even holiday packages for ongoing progress or achievements.

Most organisations prefer paying both types of financial rewards. It’s because together these components help build a highly driven and motivated team that’s always working hard to push the sales process.

     It’s like a win-win situation for both employees and the management.

Factors	Commission	Incentives
Meaning	Paid based on a percentage of sales achieved.	Paid after meeting great sales or other growth-led performance.
Structure	Includes a fixed percentage of revenue on sales made.	Can be paid as bonuses, trips, gifts, etc.
Pay Cycle	Earned regularly besides every sales cycle.	Paid during the performance period.
Predictability	Direct correlation with sales, predictable based on performance	Can vary in timing and structure, and is not always predictable
Motivation	Encourages individual sales effort	Drives specific behaviors or performance beyond just sales
Flexibility	Typically, a fixed percentage of sales made. Can vary by product or overall quota.	Highly flexible, can be tailored to different goals
Example	5% commission on each sale made	Incentive trip for achieving the highest sales growth

💡 When companies should pay “Commission”

Commission is a popular reimbursement model for industries like retail, real estate, and insurance, where sales are derived from prospecting and selling to clients. Some organisations reimburse base salary + commission, while some just pay just commission.

As an organization, you must go for a this pay when:

• There is scope to set a fixed budget to pay the sales rep.
• When you want to motivate your reps, and drive more sales from high-level accounts.

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FAQs on Differences Between Sales Bonus Commission and Incentive Pay

• What is a sales bonus?

  A sales bonus is an incentive provided as an extra percentage over the salaries to motivate the employees.

• What is a commission pay?

  Commission pay is an incentive given to employees, often as a fixed percentage of the targetted sales achievement.

• What is an Incentive pay?

  Incentive pay is a financial reward or additional compensation reimbursed to employees for achieving specific performance, behavior, or targets. The aim of incentives is to make employees feel motivated and strive for more.