Sales commission structures play a crucial role in how businesses reward performance and motivate their sales teams. Choosing the right sales rep commission structure can significantly impact revenue, employee retention, and sales growth. In this article, we’ll explore the most common commission pay structures, their advantages, and potential drawbacks, helping you make informed decisions that align with your company goals.
Why Commission Structures Matter
Whether you're designing a plan for a seasoned enterprise sales team or a new SDR squad, the right salesperson commission structure ensures alignment between company goals and individual performance. A well-crafted commission structure for sales can:
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Encourage high performance
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Improve sales team morale
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Offer clear earning potential
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Help manage compensation budgets
Let’s break down the most widely used commission structures.
1. Straight Commission
What it is:
Salespeople earn a percentage of each sale without a base salary. This “straight commission” model means compensation is entirely performance-based: the more deals a rep closes, the higher their total earnings. There is no guaranteed income, so all pay comes directly from commissions generated by individual sales. This approach puts high performers in control of their earning potential, but it also exposes reps to income fluctuations during slower periods.
Companies benefit from lower fixed payroll costs and a highly motivated sales force, but this structure can lead to higher turnover if reps struggle to maintain consistent sales. Straight commission is most commonly used in industries where sales cycles are shorter and personal initiative is critical, such as real estate, insurance, and certain high-volume product sales.
Ideal for:
Real estate agents, insurance brokers, and industries where reps operate like entrepreneurs.
Pros:
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High earning potential for top performers
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Low fixed cost for the employer
Cons:
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Unstable income for reps depending on design
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High turnover if goals aren’t met (or simply unrealistic)
2. Base Salary Plus Commission
What it is:
Reps receive a fixed salary and earn commissions on top of that. Any sales commission structure can be combined with fixed salary, and the ideal mix between fixed and variable income depends on role, industry and market benchmark.
Ideal for:
SaaS, tech, and B2B sales teams that need stability and performance incentives.
Pros:
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Financial stability for salespeople
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Easier to budget for employers
- Lower fixed costs for the company
Cons:
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May lower the drive for performance if base is too high
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Can lead to complacency without clear performance thresholds
3. Tiered Commission
What it is:
Commission rates increase as salespeople hit and exceed targets. In a tiered commission structure, reps start at a standard commission rate, but once they reach specific sales milestones or quotas, their commission percentage rises for additional sales within that period. For example, a salesperson might earn 5% commission on the first $100,000 in sales, then 7% on sales beyond that threshold.
This escalating payout system is designed to reward top performers, drive extra effort as they approach or surpass targets, and encourage teams to consistently push for higher achievement. Tiered commissions are especially effective for incentivizing overperformance, maximizing revenue, and keeping motivation high throughout the sales cycle.
Ideal for:
Motivating high achievers, upselling, and enterprise sales cycles.
Pros:
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Rewards exceeding expectations
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Encourages aggressive performance near period ends
Cons:
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Can complicate payout calculations if not using a dedicated system like Bentega
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Reps may “sandbag” deals to the next period, if not designed appropriately
4. Draw Against Commission
What it is:
Salespeople receive an advance (draw), which is deducted from future earned commissions. This fixed advance gives reps steady cash flow before any deals are closed. As commissions come in, they’re first used to pay back the draw. Only once the advance is “repaid” do reps receive additional commission payments.Draws can be recoverable (requiring repayment) or non-recoverable (acting more like supplemental salary).
This structure is helpful for onboarding new sales reps or supporting those in long sales cycles, offering income security while reps ramp up. Clear communication and careful management are essential to ensure both fairness and motivation.
Ideal for:
Onboarding new sales reps, industries with long sales cycles.
Pros:
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Provides early cash flow for reps
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Helps bridge slow ramp-up periods
Cons:
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Complex to administer
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Can lead to rep dissatisfaction if performance lags
- Drains liquidity for the company as the employer essentially operates as a bank for employees
5. Residual Commission
What it is:
Ongoing commission on recurring revenue or repeat sales from the same client provides salespeople with continued earnings for as long as their clients remain active and generate revenue for the company. Unlike one-time commissions, residual commissions incentivize reps to maintain strong relationships, offer ongoing support, and ensure customer satisfaction to minimize churn. This structure is commonly used in businesses with subscription models, managed services, or any scenario where clients make repeat purchases.
Residual commissions reward long-term account management and make the salesperson a partner in the client’s continued success, aligning their interests with the company’s long-term revenue growth.
Ideal for:
Subscription-based models (e.g., SaaS, especially Customer Success roles where a rep is assigned a portfolio of customers to take care of), agencies, or service industries.
Pros:
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Encourages long-term client relationships
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Rewards retention and upselling
Cons:
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Slower upfront earnings
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May be less motivating for short-term closers
6. Revenue vs. Profit-Based Commission
Revenue-Based: Commission is based on total deal value. Profit-Based: Commission is based on the margin or profit generated from the deal.
Pros of Revenue-Based:
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Simpler to calculate
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Encourages volume sales
Pros of Profit-Based:
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Encourages smarter pricing and discount control
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Aligns with business profitability
Choosing the Right Model:
Selecting between revenue and profit-based commission pay structures depends on your business priorities - volume vs. margin.
How to Choose the Right Sales Commission Structure
When evaluating commission structures for sales, consider:
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Sales cycle length
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Average deal size
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Ramp-up period for reps
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Market competitiveness
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Customer retention goals
Balancing motivation and fairness is key. The right sales rep commission structure will differ between industries, and even between roles within the same company.
Final Thoughts
Understanding and choosing the right commission structures is crucial for any growing sales organization. Whether you're scaling a startup or optimizing an enterprise sales force, your commission structure for sales can be a game-changer. Revisit your plan regularly to adapt to market shifts, business strategy, and sales rep feedback.
Related Reading
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