What’s your sales commission structure?

Here are some commission structures to motivate your sales reps.

Commissions are a form of compensation. They are "variable" incentives paid to individuals because they are based on performance. Commissions are typically a percentage of sale volume, revenue, gross margin, or other variables. Commissions are paid in addition to other forms of compensation such as salary.

The compensation strategy is a high-level approach to align a business’ rewards, benefits, pay, and other forms of remuneration with its objectives.

The most common Incentive/Commission compensation terms/techniques are the following:

1.    Ramped rates / Accelerated rates

Ramped rates / Accelerated rates are used to reward superior performance. They typically kick in once a sales rep has achieved certain sales levels. The sales levels may be based on daily/weekly/semi-monthly/monthly total individual/group/team sales. This plan is also known as kicker method or tier up commission plan.

Example: John is a call centre sales rep and his commission is calculating based on his daily sales.

John will make 7% if his daily sales total of $0-1500, 9% if $1501-3000 and 10% if over $3000.

If John’s daily sales is $3500, then his daily commission is $350.

The commission rates will jump on sales levels to serve as an extra motivation to continuing the great performance.

There may be multiple sales level plans exists in one company

2.    Slab rates

Slab rates are used to reward higher performance. The sales generators get different commissions rate on each sales level. The sales levels may be based on daily/weekly/semi-monthly/monthly total individual/group/team sales.

Example: John is a call centre sales rep and his commission is calculating based on his daily sales.

John will make 7% for his daily sales total of $0-1500, 9% for $1501-3000 and 10% for over $3000.

If John’s daily sales is $3500, then his daily commission is $290.

.ie (7% for first 1500 = $105) + (9% for next $1500 = 135)+ (10% for $500) =$290

There may be multiple slab rate plans exists in one company.

3.    Flat rates

Flat rates are used to reward top performers or agents with recurring clients sales. The sales generators get the same commission rate on sales they made. The sales levels may be based on daily/weekly/semi-monthly/monthly total individual/group/team sales.

Example: John is a call centre sales rep and his commission is calculating based on his daily sales.

John will make 15% on his sales

If John’s daily sales is $3500, then his daily commission is $525.

There may be multiple flat-rate plans exists in one company.

4.      Unit rate plan or straight commission plan.

The simplest of all sales comp plans. This type of plan pays a simple percentage of all sales, so a sales rep is sharing in a portion of the revenue he generates for the company. There shouldn’t be any quota associated with these types of plans.

Example: Matt works as a sales agent for a fintech company. They’re selling payment processing solutions. For each subscription, Matt is getting $250 as commission.

5.    On-Target Commissions:

On-Target Commissions or On-Target Earnings refers to the amount paid to a payee if all their targets have been achieved. A salesperson’s compensation earnings are constituted of base salary and the additional variable components in a compensation plan like bonuses and commission.

Example: John and Steve are the call centre sales reps and their commission is calculating based on a targeted monthly sales.

The company’s monthly target for each sales agent is $100,000 per month. If the sales

Last month John made $105,000 worth of sales, and he earned $5,250 as commission.

And Steve’s total sales were 95,000, but not eligible for any commission because he was not achieved the target.

Some companies set individual sales targets for each sales personnel.

6.    Recurring Revenue Plan.

Common in the SaaS (Software as a Service) business subscription model, recurring revenue in sales refers to payments made in set intervals e.g. Annual Recurring Revenue, Quarterly Recurring Revenue, Monthly Recurring Revenue.

7.      Roll up Commission plan.

A level-based reporting structure in larger businesses where several payee’s sales performance is linked to their sales manager, with several managers’ aggregated performance relating to a Head/VP of Sales’ commission.

Example: John is the Head of sales in a company. Steve and Matt are the sales managers working under him. John is getting 2% commission on the combined sales made by Steve’s and Matt’s team. And Steve and Matt will be getting 2.5% commission on their own team’s performance.

8.      Top performers' top-up commission plan.

A business’ Top Performers are the sales reps that achieve higher win rates than others and help provide insight in improving the sales development processes.

Example: John, Steve and Matt are some of several sales reps working for a company.

All of the sales reps getting a flat rate commission of 10% commission on their total sales. And the top 5 monthly performers will get 2% addon commission.

In last month, John and Steve were on the top5 sales performers list. So they got 10% regular commission plus 2% top performance commission.  

It seems simple, right? More money = better salespeople?