What is commission?
Commission is pay that scales with an outcome. A salesperson earns a percentage of what they close. An affiliate earns a percentage of what their link sells. An influencer may earn a cut of purchases made with their code. Historically the advertising business itself ran on commission: agencies were paid a fixed percentage of the media they bought for a client, which is where the word agency comes from.
Today commission appears in agencies in a few places: business development staff paid a percentage of new revenue, referral fees paid to partners who introduce clients, affiliate and influencer arrangements managed on a client's behalf, and occasionally a media or talent arrangement where the agency takes a percentage of a spend it manages.
Why it matters
Why commission matters
Commission aligns incentives, which is its whole appeal. The person who gets paid when the thing sells has every reason to make it sell. For a brand running affiliate or influencer programs it turns marketing spend into a cost of sales: nothing is paid until something is bought. For an agency it is a way to reward the people who bring work in without inflating fixed payroll.
It also distorts incentives, which is its whole risk. A salesperson on commission will close a bad-fit client. A media agency on commission has a reason to recommend more media. Wherever commission exists, someone should be asking what behavior it is actually paying for.
In practice
How commission works in practice
- 01
The structure is agreed in writing before any sale: the percentage, what it is calculated on (gross revenue, net revenue, margin, media spend), when it is earned (on signature, on invoice, on payment) and for how long (first contract only, or the life of the account). For affiliate and influencer programs, tracking links or codes attribute each sale, a platform reports the totals, and payouts run monthly after returns are deducted.
- 02
Inside an agency, commission on new business is usually paid on cash received rather than on contract value, so the agency is not paying out on money that never arrived. Referral fees to partners are typically a one-time percentage of the first project.
Watch out
What people get wrong about commission
Paying it on the wrong base. A percentage of revenue rewards big, low-margin jobs; a percentage of gross profit rewards jobs that actually make money. The second mistake is open-ended commission on accounts that other people have grown for years. The third, on the brand side, is assuming a commission-based program is free because it only pays on results: the margin given away on every sale is real money, and at scale it can cost more than a fee.
There is a creative cost too. Work that is paid for by commission tends to be judged only by what it sells this month, which is a poor way to build a brand that has to be worth something next year. Commission is a fine way to pay for a transaction and a bad way to pay for an idea.
