A sales commission is a performance-based reward given to a third party in exchange for sales made.
Sales commissions are widely used in retail as a means of motivating salespeople to sell more. Sales-commission-based models are also used in affiliate marketing, and are widely employed in Internet-based marketing and sales. Many blog editors, online influencers and informative websites receive sales commissions from merchants when their followers buy products based on their recommendations.
In the financial services industry, sales commissions are often referred to as retrocession fees. Investment funds may pay retrocession fees to banks and financial advisors when they sell their customers shares in those funds. Insurance companies may pay retrocession fees to insurance brokers, banks and financial advisors when they sell their insurance policies to customers.
Many blogs and websites which provide financial advice receive sales commissions from banks, credit card issuers, insurance companies and other financial services providers for directly or indirectly promoting their financial products.
The use of sales commissions and retrocession fees as a means of driving sales is widely criticized because it heavily impacts the neutrality of available information and in many cases leads to direct conflicts of interest between service providers and their customers.
For example, a salesperson may recommend an inferior product to a customer because they receive a higher sales commission on the sale of that product. A financial advisor may recommend investment funds or insurance policies which are expensive or otherwise unfavorable to their clients because they receive high retrocession fees for sales of those products.
Retrocession fees explained