Sales commission is the portion of compensation that depends on documented results. The right model aligns behavior with company goals, makes incentives clear, and ensures fairness across the team. Below you'll find seven proven models, each with strengths, weaknesses, and calculation examples, plus practical advice for implementation and optimization.
| Model | Strengths | Weaknesses | Best For |
|---|---|---|---|
| 1. Commission Only | Maximum drive, low fixed cost | High risk, difficult recruiting | Transactional sales |
| 2. Base + Commission | Stability + performance | Too-heavy base dampens drive | B2B moderate cycle |
| 3. Tiered Commission | Momentum, rewards top performers | Requires clear dashboards | Volume focus |
| 4. Customer Journey/Subscription | Rewards healthy customers | Spread-out income, long ramp-up | SaaS, subscription |
| 5. Gross Margin Based | Price discipline, protects margin | Requires precise cost data | Hardware, project sales |
| 6. Draw Against Commission | Safe ramp-up | Rules needed for uncovered draw | New markets, long cycles |
| 7. Team/Pool Based | Collaboration, knowledge sharing | Can weaken accountability | Complex sales, multi-touch |
An effective model combines a simple metric, a clear rate, and a transparent payout rule. Typical building blocks include percentage of sales, flat fee per unit, tiers with accelerator effect, milestone bonuses, and quality signals like margin or retention. Choose few elements and only measure what moves the business.
The rep is compensated entirely through commission. The rate is typically high since the company isn't paying a base salary.
Strengths: Maximum sales drive and low fixed cost.
Weaknesses: High income risk for the employee can increase churn and make recruiting difficult.
| Parameter | Value |
|---|---|
| Commission Rate | 20% |
| Monthly Sales | $50,000 |
| Commission | $10,000 |
When to choose: Transactional sales with many small deals and short cycles. Use robust qualification rules to avoid high error rates.
Fixed salary combined with variable pay. A common pay mix is 60% base and 40% variable, but adjust based on cycle length and risk profile.
Strengths: Stability without losing performance focus.
Weaknesses: Too heavy a fixed component can dampen the drive for additional sales.
| Parameter | Value |
|---|---|
| Annual OTE | $120,000 |
| Pay Mix | 60/40 |
| Base Salary (Annual) | $72,000 |
| Variable at 100% | $48,000 |
| Attainment | 90% |
| Monthly Variable | $3,600 |
| Total Monthly Comp | $9,600 |
When to choose: B2B with moderate sales cycle where recruiting and retention require baseline stability.
The rate increases at defined thresholds, rewarding quota overachievement.
Strengths: Creates momentum and drives top-line growth from top performers.
Weaknesses: Requires clear dashboards and communication.
| Sales Level | Commission Rate |
|---|---|
| $0 - $20,000 | 3% |
| $20,001 - $50,000 | 5% |
| Over $50,000 | 7% |
| Tier | Sales | Rate | Commission |
|---|---|---|---|
| Tier 1 | $20,000 | 3% | $600 |
| Tier 2 | $30,000 | 5% | $1,500 |
| Tier 3 | $15,000 | 7% | $1,050 |
| Total | $65,000 | - | $3,150 |
When to choose: When the goal is to push extra volume at the end of the period and reward outperformance without raising base rates.
Payout follows customer payments over time. Often a combination of an upfront bonus and ongoing percentage of MRR for a defined period.
Strengths: Rewards healthy customers and long-term relationships.
Weaknesses: Income is spread over time, requires patience during ramp-up.
| Component | Calculation | Amount |
|---|---|---|
| First Invoice | $3,000 | - |
| MRR | $1,200/mo | - |
| Upfront Bonus (10%) | $3,000 x 10% | $300 |
| Ongoing (5% x 12 mo) | $1,200 x 5% x 12 | $720 |
| Total Over 12 Months | - | $1,020 |
When to choose: SaaS, services, and subscription solutions where retention and quality are highly valued.
Automate Any Commission Model
Prowi automatically calculates tiered, subscription, and margin-based commission. Your reps see exactly what they've earned in real time.
Book a Demo →Payout is calculated on gross margin rather than revenue. Protects margin and prevents discount races.
Strengths: Teaches reps price discipline and product mix optimization.
Weaknesses: Requires precise cost data and clear rules for what counts as direct cost.
| Deal | Revenue | Cost | Margin | Commission |
|---|---|---|---|---|
| Deal A | $25,000 | $17,500 | $7,500 | $1,125 |
| Deal B | $25,000 | $20,000 | $5,000 | $750 |
Same revenue, different commission - because margin varies.
When to choose: Hardware, project sales, reseller, or solutions with significant cost variations.
A guaranteed draw is paid out regularly and offset against earned commission. Well-suited for onboarding periods.
Strengths: Safe ramp-up without relaxing performance expectations.
Weaknesses: Requires clear rules when draw isn't earned back.
| Scenario | Draw | Earned | Payout |
|---|---|---|---|
| Over Target | $4,000 | $5,200 | +$1,200 beyond draw |
| Under Target | $4,000 | $2,800 | -$1,200 uncovered |
When to choose: New markets, long sales cycles, or new hires building pipeline.
A collective pool based on team results is distributed according to simple allocation keys. Can be combined with a smaller individual component to prevent free-rider behavior.
Strengths: Supports collaboration, knowledge sharing, and shared pipeline hygiene.
Weaknesses: Too low an individual share can weaken personal accountability.
| Parameter | Value |
|---|---|
| Team Target | $400,000/quarter |
| Pool | 4% of sales |
| Actual Sales | $480,000 |
| Total Pool | $19,200 |
| Rep | Share | Revenue Portion | Equal Portion | Total |
|---|---|---|---|---|
| Rep A | 50% | $4,800 | $3,200 | $8,000 |
| Rep B | 30% | $2,880 | $3,200 | $6,080 |
| Rep C | 20% | $1,920 | $3,200 | $5,120 |
When to choose: Complex sales with overlapping roles, or where multi-touch and shared pipeline are the norm.
| Situation | Recommended Model |
|---|---|
| Short cycles and high deal volume | Percentage of sales or flat fee per unit |
| Drive top-line from high performers | Tiered with accelerator effect |
| Protect margin | Gross margin based commission |
| Create long-term value | Customer journey or subscription |
| Build pipeline safely | Draw against commission |
| Strengthen collaboration | Team or pool with small individual component |
| Stability and recruiting | Base plus commission with clear pay mix |
Choose one primary metric, one rate, and few exceptions. Know your data, and defer advanced rules to version two.
When is a deal closed-won, which products count, how are credits handled, when does payout occur. Use concrete examples.
Give reps access to real-time status, earned commission, and what's needed for the next tier. Without transparency, the model loses its power.
Set up approval workflows, track changes to agreements, and send periodic statements. Eliminate manual spreadsheets by centralizing calculations.
Run 1-2 periods as a pilot. Measure impact on revenue, margin, win rate, and sales behavior. Adjust rates, tiers, and definitions based on data, not gut feelings.
| Pitfall | Solution |
|---|---|
| Too many KPIs at once | Prioritize 2-3 guiding metrics |
| Incentives that reward discounting | Switch to margin-based or use tiers that penalize low margin |
| Weak data rules | Lock model rules to CRM fields and status, not free text |
| Unclear communication | Test whether a new hire can explain the model in under 2 minutes |
Implement the Right Commission Model with Prowi
From simple percentages to complex tiered structures and team pools. We help you build a commission model that drives the right results.
See Prowi in Action →A well-designed commission model creates direction, momentum, and fairness. Choose a model that fits your data and your goals, make it simple to explain, and back it up with real-time transparency.
With Prowi, you can implement all seven commission models - from simple percentage to complex tiered structures and team-based pools. Our platform calculates automatically, gives reps real-time insights, and ensures accurate payouts.
Book a demo today and see how Prowi can simplify your commission administration.