Capped commissions are a type of sales compensation plan for salespeople in which there is a maximum amount of money that can be earned in commissions. This means that even if a salesperson generates more revenue for the company, they will not earn any additional commissions beyond the cap.
For the record, we do not recommend these.
However, companies still implement these. One reason might be to control costs.
By capping commissions, a company can limit the amount of money that it spends on sales compensation. This can be especially important for companies that are in a competitive industry or that are facing financial challenges.
Another reason why a company might choose to use a capped commission plan is to encourage salespeople to focus on selling high-margin products or services. By capping commissions, a company can ensure that salespeople are not incentivized to sell low-margin products or services just to generate more revenue.
But the drawbacks to a capped commission plan, at least in our eyes, far outweigh the potential benefits.
One drawback is that it can demotivate salespeople who are consistently exceeding their sales goals. Another drawback is that it can make it difficult for salespeople to earn a high income.
Ultimately, the decision of whether or not to use a capped commission plan is a complex one that should be made on a case-by-case basis. There is no one-size-fits-all answer, and the best decision for one company may not be the best decision for another company.
If your company would like to explore capped commission plans, check out this capped commissions compensation plan template.