What is Commission?
Commission is a form of remuneration received by somebody for services rendered or products sold or bought It is differentiated from salary or wages, as commission payments are based on performance (such as the number of sales or the amount of revenue derived from sales). Commission is paid to sales representatives, brokers, agents, and financial advisors when they successfully facilitate the sale of a service or product.
Commission can be paid as a flat fee per transaction or as a percentage of the total transaction value. In some cases, organizations may also provide employees with a combination of commission and a base salary, or commission-only pay.
The five best examples and their explanations are as follows:
1. Real Estate Commission: In real estate, commission is paid to a real estate agent or broker as a percentage of the total value of the sale of a property. Generally, the real estate agent will list the property, show it to potential buyers, and negotiate the purchase. The typical commission for real estate agents is between 3-6% of the total sales price.
2. Stock Brokerage Commission: Stockbrokers may earn a commission when they help a client buy or sell stocks, mutual funds, or bonds. Generally, the commission rate for trades is based on the size of the transaction and the type of security being traded.
3. Recruiting Commission: Organizations may pay employees a commission when they help recruit and hire new employees. Commission can be paid as either a one-time payment or a percentage of the employee’s first-year salary.
4. Insurance Agent Commission: Insurance agents can earn a commission when they successfully sign up a new customer or when they sell a policy renewal. The commission rate is dependent on the type of insurance policy sold and the amount of the annual premium.
5. Advertising Commission: Advertising agencies and media sales representatives may earn a commission for selling ad space on TV, radio, online, or in print. The commission rate is typically based on the cost of the ad space and the sales representative’s level of expertise.
In summary, commission is a form of remuneration paid to a person or organization for services rendered or products sold or bought. Five common commission-based pay structures are real estate commission, stock brokerage commission, recruiting commission, insurance agent commission, and advertising commission.