The typical sales compensation plan is made up of two parts: fixed base salary and variable commission. Sales reps' base salaries often pay a fixed amount and are fairly straightforward. Sales commission structures—another key component in your sales compensation plan—are uniquely based on a sales rep’s individual goals and performance. Using sales commissions as a part of your compensation plan allows for different configurations based on the given sales solution.
What is a Sales Commission Structure?
When it comes to the different types of sales commission structures, the most commonly used and simple approach is using variable pay as a percentage of a single sale’s revenue. For example, a widget sells for $1,000 with a sales commission rate of 5 percent. A sales professional would collect $50 for each widget they sell.
However, there are several ways to structure your commission plan. To help you decide which is best for your company, we’re breaking down the most common sales compensation models.
Sales Commission Structures Examples
There are many ways to build out your commission structure. The standard sales commission structures typically include revenue, gross margin, and tiered commission structures, along with multiplier and commission-only plans.
Our previous widget example demonstrates a revenue commission model, aka one of the most commonly used sales commission structures. It works well in situations where product and service pricing is fixed—but greatly depends on the goals of your business.
For example, imagine a company is trying to gain market share, enter new markets, or beat out competitors. They might prefer the revenue plan to encourage sales reps to close deals. However, this setup often fails to align with larger organizational goals or the unique makeup of the sales team.
Because of this, it’s important to consider the responsibilities of each sales role and develop sales commissions models that are tailored to each role on your sales team. Knowing the pros and cons of the different sales pay structures boosts sales performance and grows the company’s bottom line. Here are a few other options to consider.