What is a sales commission plan?

A sales commission plan is a formal compensation structure that defines how salespeople earn variable pay based on their performance against defined targets. It specifies the on-target earnings (OTE), pay mix (base vs. variable), commission rate, quota, payment timing, and any accelerators or decelerators tied to performance thresholds.

What is the typical pay mix for sales reps?

The most common pay mix for account executives is 50/50 (50% base salary, 50% variable commission) or 60/40. Inside sales and SDRs typically have a 70/30 or 60/40 split. Enterprise reps or roles with longer sales cycles may use 60/40 or even 70/30, while transactional sales roles can go as aggressive as 40/60.

What are accelerators in a commission plan?

Accelerators are increased commission rates that apply after a rep exceeds their quota. For example, a rep might earn a 10% commission rate on deals up to 100% of quota, then 15% on all revenue above quota. Accelerators motivate top performers to keep selling after hitting target and are a key feature of well-designed plans.

How often should you change your sales commission plan?

Most companies redesign their sales commission plans annually, aligning with the fiscal year planning cycle. Mid-year changes should be avoided because they disrupt rep behavior, create administrative complexity, and erode trust. If a mid-year change is truly necessary, grandfather existing deals under the old plan terms.

How to Design Effective Sales Commission Plans: A Complete Guide

A well-designed commission plan aligns sales behavior with company objectives. A poorly designed one does the opposite—encouraging reps to sandbag deals, chase low-quality revenue, or game SPIFs instead of building pipeline.

This guide covers the core components of effective commission plan design and the most common mistakes to avoid.

Core Components of a Commission Plan

Every sales commission plan is built from the same fundamental building blocks:

1. On-Target Earnings (OTE)

OTE is the total expected compensation when a rep achieves 100% of their quota. It includes both base salary and target variable compensation.

OTE = Base Salary + Target Variable Pay

OTE should be competitive for the role, geography, and industry. Benchmark against compensation surveys (Radford, Pave, Levels.fyi) and adjust for your company’s stage and funding.

2. Pay Mix

Pay mix defines the ratio of base salary to variable compensation. The right mix depends on the role’s influence over outcomes and the length of the sales cycle.

Role	Typical Pay Mix (Base/Variable)	Rationale
SDR / BDR	70/30 or 60/40	Lower individual deal influence
Inside Sales AE	60/40 or 50/50	Moderate deal control, shorter cycles
Mid-Market AE	50/50	Standard for quota-carrying roles
Enterprise AE	60/40	Longer cycles, larger deals, more variable timing
Account Manager / CSM	70/30 or 80/20	Retention-focused, less direct selling

3. Quota

Quota is the performance target that defines 100% attainment. Quotas should be:

Achievable: 60-70% of reps should be able to hit quota in a well-calibrated plan
Data-driven: Based on historical performance, territory potential, and pipeline capacity
Aligned with company targets: The sum of all quotas (adjusted for expected attainment distribution) should cover the company’s revenue plan with appropriate coverage ratio

A common coverage ratio is 1.2x to 1.5x—meaning total quota across the team is 120-150% of the company’s revenue target.

4. Commission Rate

The commission rate is the percentage of revenue (or bookings) paid to the rep per dollar sold.

Commission Rate = Target Variable Pay / Quota

If a rep’s target variable pay is $100,000 and their quota is $1,000,000, the base commission rate is 10%.

5. Accelerators and Decelerators

Accelerators increase the commission rate above quota. They reward top performers and prevent reps from coasting after hitting target.

Decelerators reduce the commission rate below a minimum threshold (e.g., below 50% of quota). They manage risk by reducing payout on low-performing reps.

Example structure:

Attainment	Rate Multiplier	Effective Rate
0% – 50%	0.5x	5%
50% – 100%	1.0x	10%
100% – 150%	1.5x	15%
150%+	2.0x	20%

Designing for the Right Behaviors

The most important principle in commission design: you get what you pay for. Reps optimize for whatever the plan incentivizes.

Multi-Metric Plans

Instead of paying on a single metric (total bookings), consider splitting the variable across two or three metrics:

70% on new ARR — drives growth
20% on multi-year contract value — encourages longer commitments
10% on gross margin — discourages heavy discounting

Keep the number of metrics to three or fewer. More metrics dilute focus.

SPIFs (Sales Performance Incentive Funds)

SPIFs are short-term bonuses designed to drive specific behaviors—selling a new product, closing deals before quarter-end, or sourcing a certain number of meetings.

Rules for effective SPIFs:

Time-bound (2-4 weeks)
Simple and easy to understand
Material enough to change behavior ($500-5,000 per qualifying action)
Infrequent (no more than 3-4 per year, or they become noise)

Clawback and Recovery Provisions

Include provisions for revenue that does not materialize:

Clawbacks: Commissions are repaid if a customer churns within a specified period (commonly 6-12 months)
Recoverable draws: New reps receive a guaranteed minimum payout that is recovered from future commissions once they are ramped

Commission Plan Document Structure

Every commission plan should be documented in a clear, written plan document that includes:

Plan overview: Effective dates, eligibility, OTE, pay mix
Quota and territories: How quota is set and how territories are assigned
Commission calculation: Rate tables, accelerators, decelerators, with worked examples
Payment mechanics: When commissions are calculated, when they are paid, what triggers payment (booking, invoicing, or cash collection)
Exceptions and policies: Clawbacks, splits, deal registration, windfall clauses
Dispute resolution: How reps can raise concerns and the escalation process

Common Mistakes in Commission Design

Mistake 1: Over-Complicated Plans

If a rep cannot calculate their approximate commission on a deal within 60 seconds, the plan is too complex. Complexity reduces motivation because reps cannot connect their behavior to their payout.

Mistake 2: Uncapped Plans Without Guardrails

Uncapped plans motivate top performers, but without windfall provisions, a single large deal can create a payout that exceeds the company’s planned compensation expense. Add a windfall clause: “Deals exceeding 5x the average ACV require VP Sales approval and are paid at [reduced rate].”

Mistake 3: Quota Set Too High

If fewer than 40% of reps are achieving quota, the plan is broken. Reps will disengage or leave. Use historical data and territory analysis to set quotas that are challenging but achievable.

Mistake 4: Misaligned Timing

If the company needs annual contracts but the plan pays on monthly bookings, reps will optimize for small monthly wins instead of larger annual deals. Align the crediting event with the company’s preferred deal structure.

Mistake 5: No Annual Refresh

Markets change, products evolve, and team composition shifts. Review and refresh the commission plan annually as part of the budgeting and planning cycle.

Key Takeaways

Great commission plans are simple, transparent, and directly aligned with company strategy. Start with competitive OTE, set achievable quotas, add accelerators that reward top performers, and document everything clearly. The best commission plan is one where every rep can explain how they earn their variable pay—and the behaviors it rewards are exactly the ones you want.