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What is Residual Commission?

Wayne Probert by Wayne Probert
August 29, 2023
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What Is Residual Commission
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One thing that many people find more alluring about working for an insurance company is the amount of commission a representative can get. The more sales you make, the more money you’re likely to receive. This is known as residual commission.

You can use this reward as a sales incentive when working with a clientele you like. Not only will they trust you more, but they’ll generally see you as a friend rather than a business partner.

Keep reading to learn more about what residual commission is, and how you can utilize it within your sales strategy.

What are Residual Commissions?

Residual commissions are components of an incentive plan in which commission payments are earned not just on initial sales, but also on subsequent sales of the same product or service over time.

This is different from a traditional sales commission plans, which are paid after only a single sale or transaction. Typically, residual-based commission structures are used in industries such as multi-level marketing, health and beauty products, telecommunications, and other subscription-based services, where the potential for multiple sales or payments over a certain time period is high.

In many cases, this type of commission structure can be more lucrative for those on the sales team since they can continue to earn money on product or services that were initially sold.

Benefits of Residual Commissions

Residual commissions are a major benefit in the commission-based sales industry. These commissions are earned when a sale is made and an ongoing commission is paid out for as long as the customer remains a customer.

This means that as a salesperson, you will continue to receive payments on a regular basis for all of the customers that you have acquired. Residual commissions are a great way to increase earning potential because the amount of work required to maintain customers is much less than it would be with a single-sale commission.

Furthermore, residual commissions provide an opportunity for more long-term stability as the financial earning potential can be almost guaranteed. In short, residual commissions can be an invaluable tool for sales professionals.

Types of Residual Commissions

There are three primary types of residual commissions, including override commissions, bonus commissions, and residual income agreements.

Override commissions are fees paid to a salesperson when their direct sales exceed a predetermined threshold. Bonus commissions are additional payments made to salespeople based on a predetermined performance metric, such as total annual sales.

Residual income agreements involve the sale of physical goods or services to a customer, with a commission payment due when the customer continues to purchase the product or service regularly over time. This type of commission encourages salespersons to cultivate customer relationships in order to ensure ongoing sales and generate recurring income.

Calculating Residual Commissions

Calculating residual commissions requires understanding of the pay structure, product sales, and business requirements. Residual commissions are based on a percentage of product sales, determined at the beginning of the arrangement.

Further, calculating residual commissions requires knowledge of discounts, returns, and cancellations. This includes tracking when product sales occur, if any, of return or cancellation, and how this affects residual commission calculations.

Learn All About Residual Commission

Residual commissions are a great way to make an extra income from the relationships created during a sale. They help businesses reward loyal customers and last over time.

To take advantage of residual commissions, consider partnering with a broker or sales representative to help you maximize the benefits of this type of commission.

Visit our main blog for more!

Wayne
Wayne Probert

Wayne Probert is a senior reporter at Zobuz, covering state and national politics, and he is a grantee with the Pulitzer Center on Crisis Reporting. Before joining Zobuz, he worked as a freelance journalist in Kentucky, having been published by dozens of outlets including NPR, the Center for Media.

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