Sales compensation refers to the total pay structure that organizations use to reward their sales teams for achieving revenue targets and business objectives. It encompasses base salary, variable pay components like commissions and bonuses, and supplemental incentives such as SPIFs (Sales Performance Incentive Funds) and accelerators.
According to WorldatWork, the leading global association for compensation professionals, effective sales compensation design is one of the most powerful levers organizations have to drive revenue growth. When structured correctly, it aligns individual seller behavior with company strategy, motivates peak performance, and attracts top talent in competitive markets.
The stakes are significant. SHRM research indicates that sales compensation typically represents 15-20% of total revenue for B2B organizations, making it one of the largest controllable expenses after cost of goods sold. Yet despite this investment, many companies struggle with compensation plans that create misaligned incentives, administrative complexity, and seller confusion.
This guide provides a comprehensive framework for understanding, designing, and optimizing sales compensation across different industries and company stages. Whether you are building your first compensation plan or refining an existing structure, you will find actionable templates, current benchmark data, and analytical approaches to measure effectiveness.
Every sales compensation structure contains several fundamental elements that work together to create total earnings potential:
Base Salary: The fixed portion of compensation paid regardless of performance. Base salary provides financial stability and is particularly important for roles with longer sales cycles or significant non-selling responsibilities. According to PayScale data, base salary typically represents 40-60% of on-target earnings for quota-carrying sales roles.
Variable Compensation: Performance-based pay tied to achieving specific metrics or quotas. This includes commissions (typically a percentage of revenue or bookings) and bonuses (lump-sum payments for hitting defined thresholds). Variable pay creates the direct link between individual performance and earnings.
On-Target Earnings (OTE): The total expected compensation when a salesperson achieves 100% of their quota. OTE combines base salary and expected variable pay at target performance. This figure serves as the primary benchmark for market competitiveness and internal equity.
Quota: The performance target against which variable compensation is measured. Quotas may be expressed as revenue, bookings, units sold, or other metrics aligned with business objectives. Effective quota setting balances ambition with attainability, typically targeting 60-70% of the sales team achieving or exceeding quota.
Accelerators and Decelerators: Mechanisms that adjust commission rates based on performance relative to quota. Accelerators increase rates above quota to reward overachievement, while decelerators reduce rates below threshold to protect company margins on underperformance.
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Book a demo →Organizations employ various compensation structures depending on their business model, sales cycle characteristics, and strategic priorities. Understanding the strengths and limitations of each model helps leaders select the right approach for their context.
In salary-only structures, salespeople receive fixed compensation without variable components tied to individual performance. While uncommon for traditional sales roles, this model appears in specific contexts.
Best suited for:
Advantages: Simplified administration, predictable labor costs, reduced internal competition, and focus on customer outcomes over short-term revenue.
Disadvantages: Limited performance motivation, difficulty attracting competitive sales talent, and no direct mechanism to reward top performers.
Commission-only structures provide no base salary, with all compensation derived from sales performance. Sellers earn a percentage of revenue they generate, creating a direct pay-for-performance model.
Best suited for:
Commission rates in pure commission models typically range from 10-20% of contract value, significantly higher than commission rates in hybrid structures that include base salary.
Advantages: Maximum performance motivation, variable cost structure aligned with revenue, and attraction of entrepreneurial sales talent.
Disadvantages: High seller turnover during ramp periods, potential for aggressive sales tactics, difficulty attracting risk-averse talent, and reduced seller willingness to invest in non-revenue activities.
The most prevalent structure combines fixed base salary with variable commission on sales performance. This hybrid model balances security with performance motivation.
Typical structures:
According to Alexander Group research, the 60/40 split represents the most common structure across B2B technology sales, reflecting the balance between attracting quality talent and maintaining performance motivation.
Rather than continuous commission on revenue, this model provides lump-sum bonuses for achieving specific thresholds or objectives. Bonuses may be tied to quota attainment, specific deal sizes, or strategic objectives.
Best suited for:
Common bonus structures:
Tiered structures vary commission rates based on cumulative performance, typically increasing rates as sellers exceed quota thresholds. This creates accelerating earnings potential for top performers.
Example structure:
| Attainment Level | Commission Rate | Example Earnings on $100K Quota |
|---|---|---|
| 0-80% of quota | 8% | $6,400 (at 80%) |
| 80-100% of quota | 10% | $2,000 additional |
| 100-150% of quota | 12% | $6,000 additional (at 150%) |
| 150%+ of quota | 15% | Uncapped |
Tiered plans are particularly effective for driving overachievement among top performers while managing costs on baseline performance.
Territory-based plans compensate sellers on total revenue within their assigned geographic or account territory rather than individual deal attribution. This model works well when multiple team members influence sales outcomes.
Best suited for:
Profit-based compensation ties variable pay to deal profitability rather than revenue. Sellers earn higher commissions on deals with better margins, aligning individual incentives with company financial performance.
Advantages: Reduces discounting behavior, focuses sellers on value selling, and protects company margins.
Disadvantages: Requires transparent margin data, can create complexity in multi-product sales, and may discourage competitive deals in price-sensitive markets.
Designing effective sales compensation requires systematic analysis of your business model, competitive market, and strategic objectives. The following framework provides a structured approach to plan development.
Before designing compensation mechanics, clarify the strategic outcomes you need from your sales organization:
Revenue objectives: What are your growth targets? Are you prioritizing new customer acquisition, expansion within existing accounts, or balanced growth?
Product priorities: Do certain products or services deserve selling emphasis? Strategic products may warrant higher commission rates or separate bonus pools.
Customer segmentation: How do you segment your market? Different segments (enterprise, mid-market, SMB) may require distinct compensation approaches.
Sales motion: What is your primary sales model? Transactional, consultative, and enterprise sales motions have different optimal compensation structures.
Document these strategic priorities before proceeding with compensation design. Every subsequent decision should reinforce these objectives.
Determine competitive total compensation for each sales role based on market data and internal equity considerations.
Market data sources:
Position your OTE relative to market based on your talent strategy. Companies seeking to attract top-tier talent typically target 60th-75th percentile of market rates.
Establish the ratio between base salary and variable compensation. Higher variable ratios create stronger performance motivation but may limit candidate pools.
Factors influencing pay mix:
Choose metrics that align with your strategic priorities and can be objectively measured.
Common performance measures:
Limit primary measures to 2-3 metrics to maintain plan clarity and seller focus.
Establish performance targets that balance ambition with attainability. According to McKinsey research, optimal quota attainment distribution sees 60-70% of sellers achieving or exceeding target.
Quota setting approaches:
Document quota-setting methodology and communicate the rationale to sellers. Perceived fairness in quota assignment significantly impacts seller engagement.
Define the formulas that translate performance into earnings.
Key decisions:
Before finalizing the plan, model earnings across performance scenarios to validate plan economics.
Scenarios to model:
Confirm that earnings at each level align with your compensation philosophy and budget constraints.
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Book a demo →The following templates provide starting frameworks for common sales compensation structures. Adapt these templates to your specific business context and strategic priorities.
For quota-carrying sellers focused on new business acquisition in subscription software.
| Component | Details |
|---|---|
| On-Target Earnings | $150,000 - $200,000 (varies by market) |
| Pay Mix | 50% base / 50% variable |
| Primary Measure | Net New ARR |
| Commission Rate | 10% of Net New ARR at quota |
| Threshold | Commission begins at 50% of quota at 5% rate |
| Accelerator | 1.5x rate (15%) above 100% attainment |
| Super Accelerator | 2x rate (20%) above 150% attainment |
| Payment Timing | Monthly, following deal close |
| Quota Period | Annual quota, measured quarterly |
For top-of-funnel roles focused on pipeline generation and lead qualification.
| Component | Details |
|---|---|
| On-Target Earnings | $65,000 - $85,000 |
| Pay Mix | 70% base / 30% variable |
| Primary Measure | Qualified Opportunities Generated |
| Secondary Measure | Pipeline Value Created (20% weight) |
| Bonus Structure | $250 per qualified opportunity at quota |
| Pipeline Bonus | 2% of pipeline value that converts to closed-won |
| Accelerator | $350 per opportunity above 100% attainment |
| Quota Period | Monthly quotas |
For sellers managing complex, high-value enterprise relationships with extended sales cycles.
| Component | Details |
|---|---|
| On-Target Earnings | $250,000 - $350,000 |
| Pay Mix | 60% base / 40% variable |
| Primary Measure | Total Contract Value (TCV) |
| Commission Rate | 5% of TCV on new logos |
| Expansion Rate | 3% of TCV on expansion within existing accounts |
| Strategic Deal Bonus | Additional 2% on deals >$500K TCV |
| Accelerator | 1.5x rate above 100% attainment |
| Multi-Year Bonus | Additional 1% for 3+ year contracts |
| Payment Timing | 50% at signing, 50% at implementation go-live |
For post-sales roles focused on retention and expansion within existing accounts.
| Component | Details |
|---|---|
| On-Target Earnings | $90,000 - $130,000 |
| Pay Mix | 75% base / 25% variable |
| Primary Measure | Net Revenue Retention (NRR) |
| Secondary Measure | Gross Revenue Retention (GRR) |
| NRR Bonus | $5,000 quarterly bonus for achieving 110%+ NRR |
| Expansion Commission | 5% of upsell/cross-sell ARR |
| Churn Penalty | $500 reduction per preventable churn event |
| Health Score Bonus | $1,000 for maintaining 80%+ green health scores |
For advertising and media sales roles with campaign-based revenue.
| Component | Details |
|---|---|
| On-Target Earnings | $120,000 - $180,000 |
| Pay Mix | 55% base / 45% variable |
| Primary Measure | Net Revenue Booked |
| Commission Rate | 8% of net revenue |
| New Business Premium | Additional 3% on first campaign from new advertisers |
| Strategic Category Bonus | $2,500 per new advertiser in priority verticals |
| Accelerator | 12% rate above 100% attainment |
| Annual Commitment Bonus | 2% bonus on annual IO commitments |
Calculating sales compensation requires understanding the mathematical relationships between quota, attainment, and commission rates. The following formulas and examples demonstrate common calculation approaches.
The fundamental commission formula:
Commission = Revenue Sold x Commission Rate
Example: A seller with a 10% commission rate closes $50,000 in revenue.
Commission = $50,000 x 0.10 = $5,000
OTE represents total expected compensation at 100% quota attainment:
OTE = Base Salary + (Annual Quota x Commission Rate)
Example: A seller has $80,000 base salary, $800,000 annual quota, and 10% commission rate.
OTE = $80,000 + ($800,000 x 0.10) = $80,000 + $80,000 = $160,000
This represents a 50/50 pay mix (base/variable).
Quota attainment expresses performance as a percentage of target:
Attainment % = (Actual Revenue / Quota) x 100
Example: A seller with $200,000 quarterly quota closes $230,000.
Attainment = ($230,000 / $200,000) x 100 = 115%
For plans with varying rates at different attainment levels:
Example structure:
Calculation for 130% attainment on $200,000 quota ($260,000 actual):
Tier 1: $200,000 x 0.08 = $16,000
Tier 2: $60,000 x 0.12 = $7,200
Total Commission = $23,200
To determine the commission rate needed to achieve target variable compensation:
Commission Rate = Target Variable Compensation / Annual Quota
Example: You want a seller to earn $75,000 variable at 100% of a $750,000 quota.
Commission Rate = $75,000 / $750,000 = 0.10 (10%)
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Book a demo →Software-as-a-Service companies operate with distinct compensation dynamics driven by recurring revenue models, rapid scaling requirements, and intense competition for sales talent. The following benchmarks reflect current market conditions based on data from OpenView Partners, Bessemer Venture Partners, and industry compensation surveys.
| Company Stage | ARR Range | AE OTE Range | Typical Quota |
|---|---|---|---|
| Seed/Early | $0-$1M | $100K - $140K | 3-4x OTE |
| Series A | $1M - $5M | $130K - $170K | 4-5x OTE |
| Series B | $5M - $20M | $150K - $200K | 4-5x OTE |
| Series C+ | $20M - $100M | $180K - $250K | 5-6x OTE |
| Scale/Public | $100M+ | $200K - $300K+ | 5-6x OTE |
| SDR Type | OTE Range | Base/Variable Split | Monthly Quota (Opportunities) |
|---|---|---|---|
| Inbound SDR | $55K - $70K | 70/30 | 15-25 qualified opportunities |
| Outbound SDR | $65K - $85K | 65/35 | 10-15 qualified opportunities |
| Enterprise SDR | $75K - $95K | 65/35 | 6-10 qualified opportunities |
Quota-to-OTE Ratio: The standard benchmark is 4-5x, meaning a seller with $160,000 OTE should carry $640,000-$800,000 in annual quota. Early-stage companies often use lower ratios (3-4x) to attract talent before achieving product-market fit.
Commission Rates on ARR: Typical rates range from 8-12% on net new ARR for Account Executives. Rates increase to 10-15% above quota through accelerators.
Ramp Period: Most SaaS companies provide 3-6 month ramp periods with reduced quotas or guaranteed variable pay. Standard ramp structures reduce quota to 25% in month 1, 50% in month 2, 75% in month 3, and 100% thereafter.
Quota Attainment Distribution: Healthy SaaS sales organizations see 60-70% of ramped sellers achieving quota. Attainment below 50% suggests quota-setting issues or product-market fit challenges.
| ACV Segment | Typical AE OTE | Pay Mix | Sales Cycle |
|---|---|---|---|
| SMB ($5K-$15K ACV) | $100K - $140K | 50/50 | 14-30 days |
| Mid-Market ($15K-$50K ACV) | $140K - $180K | 55/45 | 30-90 days |
| Commercial ($50K-$150K ACV) | $180K - $220K | 55/45 | 60-120 days |
| Enterprise ($150K+ ACV) | $220K - $350K | 60/40 | 120-270 days |
Media and advertising sales operate with unique dynamics including seasonal budgets, agency relationships, and campaign-based revenue. Compensation structures must account for these industry characteristics while attracting talent from competitive markets.
| Role | OTE Range | Pay Mix | Commission Structure |
|---|---|---|---|
| Digital Account Executive | $100K - $150K | 55/45 | 6-10% of net revenue |
| Senior Account Executive | $150K - $200K | 50/50 | 8-12% of net revenue |
| Agency Sales Director | $180K - $280K | 55/45 | 5-8% + agency tier bonuses |
| VP of Sales | $250K - $400K | 65/35 | Team override + individual |
| Media Type | AE OTE Range | Commission Rate | Key Bonus Triggers |
|---|---|---|---|
| Television | $80K - $200K | 4-8% | Upfront commitments, new advertisers |
| Radio | $50K - $120K | 8-15% | Annual contracts, local direct |
| Print/Publishing | $70K - $140K | 8-12% | Multi-platform deals, digital add-ons |
| Out-of-Home | $80K - $150K | 6-10% | Long-term contracts, premium inventory |
Seasonality: Media budgets cluster around Q4 holiday spending and upfront buying seasons. Compensation plans often include quarterly bonuses to maintain motivation during slower periods.
Agency vs. Direct: Sales to advertising agencies typically carry lower commission rates (5-8%) due to volume and existing relationships, while direct-to-brand sales earn higher rates (10-15%) reflecting greater acquisition effort.
New Business Premiums: First-time advertiser acquisitions commonly earn 25-50% commission premiums to incentivize pipeline development beyond existing account management.
Company size creates fundamental differences in sales motion, deal complexity, and compensation structure. Understanding these distinctions helps organizations build appropriate plans for their target market.
SMB (Small and Medium Business) sales typically feature high-velocity transactions with shorter cycles and lower deal values.
Typical characteristics:
| SMB Role | OTE | Pay Mix | Key Metrics |
|---|---|---|---|
| SMB Account Executive | $80K - $120K | 50/50 - 55/45 | New logos, MRR |
| SMB Sales Manager | $120K - $160K | 60/40 | Team quota, rep productivity |
SMB compensation design principles:
Mid-market sales bridges the gap between SMB velocity and enterprise complexity.
Typical characteristics:
| Mid-Market Role | OTE | Pay Mix | Key Metrics |
|---|---|---|---|
| Mid-Market AE | $130K - $180K | 55/45 | ARR, multi-year deals |
| Mid-Market Sales Manager | $160K - $220K | 60/40 | Team quota, deal progression |
Enterprise sales involves complex, multi-stakeholder deals with extended timelines and significant contract values.
Typical characteristics:
| Enterprise Role | OTE | Pay Mix | Key Metrics |
|---|---|---|---|
| Enterprise AE | $200K - $350K | 60/40 | TCV, strategic logos |
| Strategic Account Exec | $280K - $450K | 60/40 - 65/35 | Named account growth, NRR |
| Enterprise Sales Director | $300K - $500K | 65/35 | Team quota, deal size |
Enterprise compensation design principles:
| Dimension | SMB | Enterprise |
|---|---|---|
| Pay Mix | 50/50 | 60/40 |
| Quota Period | Monthly/Quarterly | Annual |
| Ramp Time | 1-3 months | 6-12 months |
| Quota:OTE Ratio | 4-5x | 5-8x |
| Commission Rates | 10-15% | 5-10% |
| Accelerator Multiplier | 1.25-1.5x | 1.5-2x |
| SPIFs | Common (activity-based) | Less common (strategic) |
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Quota Attainment Distribution: The percentage of sellers achieving various quota thresholds. Healthy organizations target 60-70% of ramped sellers at or above 100% attainment.
Benchmark interpretation:
Below 50% attainment = Quotas likely too high or product-market challenges
50-65% attainment = Typical range, may need minor adjustments
65-75% attainment = Strong performance, quotas appropriately set
Above 75% attainment = Quotas may be too conservative
Cost of Sale: Total compensation expense as a percentage of revenue generated. According to Alexander Group benchmarks, cost of sale typically ranges from 8-15% for B2B technology companies, varying by deal size and sales model complexity.
Cost of Sale = Total Sales Compensation / Total Revenue x 100
Compensation Effectiveness Ratio: The relationship between compensation investment and revenue outcomes. Higher ratios indicate more efficient compensation spend.
Effectiveness Ratio = Revenue Generated / Total Compensation Cost
Pay for Performance Correlation: The statistical relationship between individual compensation and performance outcomes. Strong plans show clear correlation (r > 0.7) between earnings and quota attainment.
Implement a structured analytics approach across four dimensions:
1. Plan Health Metrics:
2. Behavioral Indicators:
3. Competitive Position:
4. Financial Impact:
Predictive Modeling: Use historical data to forecast compensation expense and identify at-risk performers. Machine learning models can predict which sellers are likely to miss quota based on early-period indicators, enabling proactive intervention.
Scenario Planning: Model the financial impact of proposed plan changes before implementation. Simulate how different commission rates, quota levels, or accelerator structures would affect both seller earnings and company expense.
Territory Optimization: Analyze quota attainment patterns geographically to identify imbalanced territories. Data-driven territory design improves fairness and reduces the variance in seller outcomes attributable to territory assignment rather than performance.
Compensation Benchmarking: Regularly compare your compensation structure against market data to maintain competitive positioning. Track how your pay positioning changes as market rates evolve.
Effective dashboards provide real-time visibility into plan performance. Key views include:
Executive Summary:
Plan Performance:
Seller Insights:
Compensation plan design involves numerous decisions that can significantly impact effectiveness. Learning from common mistakes helps organizations avoid costly errors.
1. Overcomplicated Plans: Plans with more than 3-4 components create confusion and dilute focus. Sellers should understand how to maximize their earnings within minutes of reviewing the plan.
2. Misaligned Metrics: Measuring sellers on outcomes they cannot directly influence creates frustration. Ensure each metric corresponds to behaviors within the seller's control.
3. Inadequate Quota Setting: Quotas set without territory potential analysis or historical context create perceived unfairness. Document and communicate quota methodology transparently.
4. Insufficient Differentiation: When top performers earn only marginally more than average performers, motivation suffers. Accelerators should create meaningful earnings upside for overachievement.
5. Frequent Plan Changes: Annual plan changes are expected, but mid-year modifications erode trust. Commit to plan stability unless extraordinary circumstances require adjustment.
6. Ignoring Non-Monetary Factors: Compensation alone does not drive engagement. Career development, recognition, and work environment significantly impact retention.
7. Delayed Payments: Slow commission processing demotivates sellers. According to Gallup research, timely reward recognition strengthens the connection between behavior and outcome.
1. Simplicity: Design plans that sellers can explain in one paragraph. Complexity breeds confusion and gaming behavior.
2. Transparency: Provide clear documentation, accessible calculators, and open communication about plan mechanics and rationale.
3. Market Alignment: Regularly benchmark compensation against market data and adjust positioning based on your talent strategy.
4. Performance Differentiation: Create meaningful earnings spread between average and top performers. Top 10% of sellers should earn 2-3x the compensation of average performers.
5. Behavioral Alignment: Ensure every component drives behaviors that support company strategy. Remove legacy components that no longer serve strategic objectives.
6. Financial Sustainability: Model plan costs across performance scenarios to ensure affordability. Build in caps or decelerators only if truly necessary for budget protection.
7. Regular Review: Conduct annual plan reviews with input from sales leadership, finance, and frontline sellers. Use data to identify improvement opportunities.
8. Change Management: When implementing plan changes, communicate early, explain the rationale, model individual impact, and provide transition support.
Before launching a new or modified compensation plan, verify the following:
Effective sales compensation aligns individual motivation with organizational strategy. The frameworks, templates, and benchmarks in this guide provide a foundation for designing, implementing, and optimizing compensation plans across industries and company stages.
Key principles to remember:
Compensation is a powerful lever, but not the only lever. Combine well-designed pay structures with strong leadership, clear career paths, and engaging work environments to build high-performing sales organizations.
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