Director, Content Marketing
You must have guts.
A career in sales isn’t for the timid. It requires long hours, perseverance and going to lengths to make a prospect feel special. In some cases, you could work your butt off for a month (or longer) with little to tangibly show for it.
Whether you’re looking for a new job opportunity or your current company wants to revamp their policies with your input, here are the 10 most common sales commission structures you’re likely to encounter as a sales representative. Take this quiz to see which sales compensation plan aligns best with your sales style.
Quiz time! The 10 types of sales commission structures
Which commission structure is the best fit for your personality?
1. Exclusively salary
Just like most of the other employees at a company, this structure pays salespeople a regular salary, regardless of their sales numbers. Benefits, vacation time and medical insurance are likely also included.
A: Love it! Can’t beat that security.
B: I’d be leaving money on the table, so this isn’t the most financially savvy option for me.
C: Why aim for top salesperson if I’m not going to be compensated for my efforts? Absolutely not.
2. Straight commission
In this model, salespeople don’t have the safety net of a salary. Their take-home pay relies solely on commission from closed deals. If you’re confident in your sales ability and the demand for your product or service in the market, this is a great way to make a lot of money. Since commission is the only way to earn, the commission percentages in this model are usually generous.
A: Eek, this is too much pressure. What if I hit a sales slump?
B: I love a challenge and high commissions. Let’s do this!
C: No better motivation to pursue ghosted leads than a potentially $0 paycheck.
3. Salary and commission combo
If you’re not quite ready to jump headfirst into commission-only, this arrangement includes a balance of financial security and incentive to keep your bank account happy. Sales reps earn a modest base salary, plus commission on top of that.
A: A lot less pressure than straight commission, so I’d give this a go.
B: This arrangement requires and rewards my selling expertise, so sure!
C: When I’m rewarded for my selling success, it inspires me to sell more. Thumbs up from me!
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4. Territory volume commission
Teamwork makes the dream work! In this plan, sales teams work together to hit a sales quota for their designated region. Like group projects in high school, if you have excellent partners, you’re in luck. If your regional sales team members are duds though, a lot of the work could fall on you. When you make your quota, you win as a team. When you fall short, you lose as a team.
A: The benefits of working with a team outweigh the risk of being paired with a dolt. I’ll go for it.
B: I’m a lone wolf. People who don’t pull their weight will slow me down from earning as much as possible. No thanks.
C: If I was paired with a selling superstar, my ambition would tank. I thrive when I constantly hone my skills (and earn more the better I get).
5. Residual commission
Running a financially stable company is a numbers game. Who hasn’t heard their CFO quip that it’s less expensive to keep current clients versus going out and attracting new ones? Considering that only 2% of cold calls are effective and the generous amount of time needed to nurture an MQL, retaining business is a viable and more time-, energy- and cost-efficient way to gain revenue.
In this sales commission structure, sales reps earn based on their clients staying on as clients. This may require salespeople to jump into client services — and not just at the contract renewal stage — to help smooth any snags in the relationship.
A: Keeping clients happy is something I have moderate control over. A retention commission would be ok.
B: My people skills are top-notch. I feel good about keeping current clients content and finding opportunities to upsell.
C: I’d rather be out there winning new business versus not losing business. Not my favorite.
6. Draw against commission
New salespeople or even veteran sellers who start at a new company require a ramp-up period. They must absorb everything there is to know about the service/product they’re selling, the ideal customer and how the company differentiates itself from competitors. During this learning process, sales reps aren’t contributing much revenue to the company. Instead, they’re draining company funds for around nine months.
To recoup their monetary investment in new salespeople, companies may implement the draw against commission model. Sales reps receive a guaranteed advance each month until they’re up to speed. Then, once the training wheels come off, salespeople must repay the difference between business won in their first few months versus the amount they received from the advance.
For instance, if the new salespeople received an advance of $3,000 monthly, but in that period sold $2,700 worth of business, they compensate for the $300 shortage out of future commissions when they’re more experienced.
A: I don’t want to be in debt and depend on sales to pay it back. Rather not take the risk.
B: I’m confident I can repay the draw quickly. I appreciate the extra time to ace a new industry and competitor landscape.
C: I don’t want to see any deductions from my commissions. I’d rather take the chance and learn on the fly.
7. Tiered commission
In the tiered commission model, the more you sell, the more you earn. The company will set milestones (either the number of deals made or total monetary value of deals), and once a salesperson surpasses a milestone, their commissions will go up by a certain percentage.
Companies also employ a tiered commission as a penalty for missed quotas. For instance, if someone misses their quota by 15%, their commission percentage may be deducted by 15%.
A: The potential for a lucrative sales cycle to make up for a slow one puts my mind at ease.
B: Love that the more I sell, the more I make.
C: Yes! Exactly the incentive I need to surpass expectations and earn more while I do it.
8. Revenue commission
No matter what you sell or its price tag, the commission for every made deal is the same dollar amount. Simple as that!
A: The pressure comes off selling specific products/services, so I can focus on the areas that I’m most confident in. This works for me!
B: I’m a selling machine! High selling volume is right up my alley.
C: The more expensive and difficult a product is to sell, the more I should be compensated for it. This structure doesn’t reward that extra hard work, so it isn’t a fit for me.
9. Gross margin commission
Winning new business isn’t free. Often, salespeople offer discounts to entice new clients to sign on or a salesperson might have to fly across the country more than once to earn a signature. In the gross margin arrangement, sales reps earn their commission percentage based not on the grand total of the deal but on the net profit for the company. So, if the salesperson incurred $1,000 worth of expenses on a business deal worth $10,000, their commission percentage would only apply to the net gain of $9,000.
A: In this case, it’s only worth my time to focus on selling the most profitable products. I don’t want to feel boxed in financially.
B: This arrangement seems fair. Business is business.
C: Challenge accepted! I can sell and keep expenses at a minimum.
10. Multiplier commission
As the name implies, the commission percentage multiplies as sales reps exceed certain milestones. If you double your quota, double that commission percentage from 10% to 20%.
This structure is popular among sales teams and individual reps who end up delivering on the contracts won. Often, this method is used to incentivize sales KPIs instead of the volume of deals. It creates a healthier sales-client team dynamic and discourages salespeople from promising too much during the negotiation process.
A: Multiply my success!
B: This structure makes me a more well-rounded sales rep. I like it.
C: Again, another opportunity to shine, flex my selling skills, and be rewarded for a job well done.
What’s your selling style?
And the results are in. Did you choose mostly As, Bs or Cs? Discover your sales style below!
Mostly As: You’re a Cautious Casey
When factors are out of your control, you start to itch. You’re willing to trade ludicrous commission checks for the security of a dependable salary. You may want to consider pursuing commission structures that allow for lulls in sales productivity or where you work as part of a team to reach a common goal.
Mostly Bs: You’re a Positive Peyton
You’re a glass-half-full sales pro who’s confident in their selling abilities. You likely have a few years of selling under your belt and are optimistic about your ability to sell your assigned product or service. You never shy away from a professional challenge!
Mostly Cs: You’re a Motivated Morgan
You thrive in a competitive environment and the more money that’s on the table, the harder you work to earn as much as you can. The absence of a base salary doesn’t scare you; rather, it drives you to reach new heights and smash your sales quota.
Go forth, sell, and prosper
Whether you identify as a cautious, optimistic or ambitious salesperson, there’s a commission and salary balance that’ll work for you. Tough workdays (and the occasional weekend) lie ahead, but the tangible and financial results for you and your employer are worth the hard work. When you’re surrounded by a supportive team, the best selling tools and a company mission you believe in, sales is a fruitful and exhilarating career. Get out there and do your thing.