Financial Dictionary -> General Finance -> Commission

Commission is money earned by independent salesmen, brokers or affiliates who refer a customer to a service or product, which they then purchase. The amount earned is often a percentage of the sale.

Unlike regular employees or salesmen, those working on commission generally set up their own marketing efforts and selling techniques independently of the company they work for. They may also work for several companies at a time selling similar products or services. When a commission structure is introduced in to a regular company for its employers, it is usually used as an incentive or bonus.

Common commission based jobs include that of the mortgage or insurance broker, who work as intermediaries between borrowers and financial institutions, online affiliate marketers market products through articles and websites for third party companies, and telemarketers that sell products via telephone.

Because the more you sell the more money is earned, the commission based structure often falls under criticism for leading to fraudulent sales and unethical practices. For example a mortgage broker may push a certain deal on a customer, knowing it probably isn't for them just so they can make commission. Equally, online affiliates may use spam tactics or fraudulent methods to make it appear they are responsible for a sale when they really aren't.

Commission structures vary from firm to firm but the percentage of a sale method is often used. Commission is also commonly based on percentage of profit, performance (sell this many and get this much commission), or on leads (referring a customer, but they do not necessarily have to buy anything).

With brokerage commission may simply be a flat fee charged for the middleman service, rather than a percentage of anything sold. Discount brokers that charge low fees often only offer transaction services (common in stock brokering). However those that offer advice and tailor a service with your needs in mind charge higher commissions.