Commission is a form of variable pay given to salespeople based on their performance, typically calculated as a percentage of the revenue or profit they generate. Commission creates a direct link between effort and reward. According to WorldatWork (2024), 94% of B2B companies use commission as part of their sales compensation.
Commission-based compensation serves multiple purposes:
According to Pavilion's Sales Compensation Report (2024), companies with well-designed commission models have 27% lower turnover among top performers.
The fundamental commission formula:
Commission = Sales Amount × Commission Rate
| Component | Value |
|---|---|
| Deal closed | $100,000 |
| Commission rate | 10% |
| Commission earned | $10,000 |
| Type | Description | Example |
|---|---|---|
| Flat rate | Same percentage on all sales | 10% on everything |
| Tiered commission | Increasing rate at higher performance | 8% → 10% → 12% |
| Revenue commission | Based on total sales value | % of ARR |
| Margin commission | Based on profit, not revenue | 20% of gross margin |
| Residual commission | Ongoing payment for recurring revenue | 2% monthly |
Rep with $250,000 quarterly quota and the following structure:
| Quota Attainment | Commission Rate |
|---|---|
| 0-100% | 8% |
| 100-120% | 12% (accelerator) |
| Over 120% | 15% |
Quarterly performance: $325,000 (130% attainment)
| Tier | Revenue | Rate | Commission |
|---|---|---|---|
| 0-100% ($0-$250K) | $250,000 | 8% | $20,000 |
| 100-120% ($250K-$300K) | $50,000 | 12% | $6,000 |
| Over 120% ($300K+) | $25,000 | 15% | $3,750 |
| Total | $325,000 | - | $29,750 |
Without accelerator: $325,000 × 8% = $26,000. The tiered model provides $3,750 extra for overperformance.
| Aspect | Commission | Bonus |
|---|---|---|
| Calculation | % of sales | Fixed amount |
| Trigger | Each sale | Milestone/goal |
| Frequency | Ongoing | Periodic |
| Predictability | Varies with deal size | Known amount |
According to OpenView's SaaS Benchmarks (2024):
| Segment | Typical Rate | Basis |
|---|---|---|
| SaaS SMB | 10-15% | ARR |
| SaaS Mid-market | 8-12% | ACV |
| SaaS Enterprise | 5-10% | TCV or ACV |
OTE (On-Target Earnings) is the total expected annual compensation at 100% quota attainment, including both base salary and variable commission. Commission is only the variable portion.
It depends on the company's payout frequency. Typically monthly or quarterly, with a short delay (lag time) after the deal closes.
With clawback, previously paid commission can be reclaimed, effectively creating negative commission for a period.
Commission is the engine of sales compensation—it creates the direct link between performance and pay that motivates reps to deliver results. Well-designed commission plans drive revenue growth and reward those who perform.
With Prowi, you can design, calculate, and manage any commission structure so reps see their earnings in real-time, and you ensure accurate, timely payouts.