A Simple Guide to Sales Commission Structures (with Examples)

What is the best way to compensate your sales team?

This question has been hotly debated for years, as there are many sales commission structures at your disposal.

In this blog post, we will discuss some of the most common types of sales commission structures and how they work.

Sales Commission Structure Best Practices

Justin Lane, our resident sales compensation expert, shared three golden rules for designing an effective sales commission structure. 

Don't cap commissions

The best sales talent will not settle for a capped salary. 

If you’re a founder or a manager, and you want the most motivating commission structure possible, check the ego at the door. 

There’s a possibility your best rep will make more money than you, or show up with a nicer car, and that’s okay. That’s business.

Simplicity always wins

Generally, the simplest plans are the most effective at motivating reps. 

The commission is your reps’ carrot. When you add multiple layers of complexity, your reps won’t know where to focus their energy. Or worse, they won’t understand how to get paid in the first place. 

Granted, the simplest plans aren’t always the best for business. The key is to strive for a plan that balances simplicity with your profitability objectives.

Make it make sense

Simplicity is one thing, but do your reps understand your structure?

Make it crystal clear to your reps how much commission they will earn on any given deal with performance dashboards or in a periodic commission report.

Once a manual task, you can now automate dashboards and custom reports using sales commission management software.

Understanding Sales Commission Rates

Before diving into examples of sales commission structures, it's important to understand sales commission rates.

Sales commissions serve as the financial reward for salespeople who successfully close transactions. By linking a portion of a salesperson’s earnings directly to the revenue they bring in, companies create a performance-driven incentive that encourages higher output.

These commission systems, while diverse, are strategically crafted based on industry norms, product types, and individual company policies. Yet, despite these differences, their purpose remains universal: to push salespeople toward exceptional results by tying their success to the bottom line.

Commission models come in various forms. Some companies keep it simple with a flat rate commission, offering a consistent percentage across all sales, no matter the deal size. Others take a more dynamic approach with tiered structures. Here, salespeople can unlock higher commission percentages as they hit certain sales targets.

Imagine this: a salesperson starts by earning a 5% cut on all sales until they reach a predefined threshold. Once they cross that line, they could see their commission rate climb, offering even greater rewards for continued success.

These commission frameworks are a critical component of broader sales compensation strategies. Often layered with a base salary or combined with additional performance bonuses, these structures are designed to give sales professionals ample opportunity to increase their earnings as they drive more revenue for the business. The more they sell, the bigger their reward, creating a powerful motivation engine that fuels both individual ambition and company growth.

7 Types of Sales Commission Structures (with Examples)

1. Base Salary plus Commission (Revenue Commission)

This is the bread-and-butter commission structure: a mix of steady, reliable income with a sweet performance bonus on top. It’s the classic combo of a fixed base salary and a variable commission based on the revenue you generate.

How it works:

• ‍‍Sales reps enjoy a stable paycheck while getting amped up about the potential for more through their commission. The variable part? That comes from multiplying the value of closed deals by their commission rate. Simple, right?

Benefits:

• Stability meets motivation—no more worrying about paying rent.
• Rewards bigger deals, making every closed contract feel like a victory lap.

Example:

• Envision this scenario: An account executive lands a $50,000 deal with a 15% commission rate. Next paycheck, they snag $7,500 in their commission check. Not bad, right

Drawbacks:

• Might leave high-flyers craving more—flat commission rates can cap their drive.
• Let’s be real: disputes can crop up when terms like discounts or refunds muddy the waters.

Related article: 5 Reasons to Reduce Sales Commission Disputes

2. Gross Margin Commission

Now, let’s shake things up. Gross margin commission shifts the focus from top-line revenue to bottom-line profitability. Instead of rewarding reps solely for closing deals, this model doles out commissions based on how profitable each sale is. You want higher margins? Negotiate smarter!

How it works:

• Reps get paid based on the profitability of the deal (gross margin), so it’s not just about closing but how well they can negotiate terms, reduce discounts, or add value. In this scenario, it's important to note that this $50,000 sale might not be equal to a similar $50,000 sale—it’s all about the margin.

Benefits:

• This approach encourages reps to become more savvy at negotiation — they’ll care as much about price as the finance team does (which is a plus!).
  Perfect for industries with fluctuating costs and margins, like retail, manufacturing, or car dealerships.

Example:

• A car salesperson closes two $50,000 sales on identical cars. One deal includes a free year of servicing (worth $2,000), eating into the gross margin. So, the salesperson earns a lower commission on the less profitable sale. Ouch, right?

Drawbacks:‍

• Can be a bit unpredictable for reps—commission becomes more complicated than a straight-up percentage.
  Requires more behind-the-scenes math.

3. Variable Commission

When you’ve got a complex product portfolio across multiple regions, this structure becomes a game-changer. You want reps laser-focused on key products or markets? This model dials up the reward where it counts and dials it down where it doesn’t.

How it works:

• Different products or regions carry different commission rates. New, shiny products might have sky-high rates, while legacy products hang out with lower percentages. The same goes for high-growth markets—boost the incentive there and watch your reps flock to them.

Benefits:

• It’s like giving your sales team a treasure map—X marks the most profitable spots.
• Helps reps prioritize the deals that matter most to the organization’s goals.

Example:

• A rep earns 6% commission on the latest product but only 3% on an outdated one. They’ll naturally focus on pushing the hot new item, while still keeping some legacy deals ticking over.

Drawbacks:

• Not for the faint of heart—this structure is a bit more complex to manage.
• Some products may get neglected, even when they’re still important.

4. Tiered Commission

Ah, tiered commission—where the thrill of the chase kicks in. With each deal, reps inch closer to a bigger payday. Hit that quota and the commission rate climbs higher and higher. Think of it as a leveling-up system for your earnings.

How it works:

• As reps climb the ladder toward their sales quota, their commission rate increases at certain milestones. The closer they get to 100%, the more cash they pocket.

Benefits:

• It's the ultimate motivator—every deal pushes them closer to a bigger payout.
• Encourages consistency and prevents sandbagging, because every extra dollar counts.

Example:

• Let’s say a rep is at 50% of their quota, earning 3% commission. But once they pass 75%, that commission rate jumps to 5%. And if they surpass 100%? Boom! They’re making 7% on every deal over that mark. A $50,000 deal post-quota earns them $3,500, a sweet reward for overachievement.

Drawbacks:

• There’s a risk of short-term thinking, with reps hyper-focused on hitting the next tier.
• Some may hold back deals for the next cycle to hit higher commission brackets.

5. Residual Commission

Residual commission—aka the gift that keeps on giving. Once a deal is closed, the rep continues to earn commission on that customer for as long as revenue flows in. But, it’s not all roses; one lost customer can cause earnings to dry up faster than expected.

How it works:

• Reps build a book of business, earning commissions as long as the clients they brought in keep buying or renewing. This model rewards relationship-building and long-term customer satisfaction.

Benefits:

• It’s like growing a personal money tree—reps enjoy the fruits of their labor over time.
• Strong incentive to keep customers happy and ensure long-term contracts renew.

Example:

• A SaaS sales rep closes a $20,000 annual contract and pockets 10% residual commission on every renewal. As long as that customer does not churn, the rep will earn $2,000 each year.

Drawbacks:

• Losing a large customer can be a massive blow to ARR, the quarterly goal, and ultimately earnings.
• This model typically is best suited for subscription-based industries or businesses with ongoing revenue streams.

6. Multiplier Commission

Ever feel like your commission rate could use a turbo boost? That’s what multiplier commission is for. This structure rewards reps who go above and beyond—selling add-ons, upselling features, or hitting multi-product sales goals can multiply their commission exponentially.

How it works:

• A rep’s commission rate gets multiplied if they hit certain targets—like selling complementary products or upselling customers during the same sales period. It’s a powerful motivator for reps to expand deals beyond the initial scope.

Benefits:

• Let’s call it “commission on steroids”—reps push for bigger, better deals, making the most of every opportunity.
• Encourages creativity in closing deals, opening up new opportunities for add-ons or bundles.

Example:

• An account executive makes a $100,000 sale with a 5% commission rate. But they also manage to sell 5 units of an add-on service. Now, their commission rate multiplies to double, giving them a 10% payout across the board for the additional. That is double the amount of commission – $10,000 instead of $5,000.

Drawbacks:

• It can get a bit tricky to track all those multipliers.
• Not every deal may be ripe for an upsell—some reps may struggle to hit the secondary targets.

7. Straight Commission (Commission Only)

Pure adrenaline, no safety net. In this type of straight commission structure, there is no base pay the rep receives — sales reps live and die by their sales. This means they are taking a high-risk, high-reward position. They either thrive under pressure or get crushed by the weight of an empty paycheck.

How it works:

• No sales? No paycheck. Straight commission means every dollar a rep earns comes from their ability to close deals. Their earnings are limitless, but so is the risk.

Benefits:

• This structure screams, "Go big or go home." The sky’s the limit for ambitious reps.
• Perfect for fast-paced sales environments with high volumes and quick cycles.

Example:

• Envision there is a salesperson who sells things by going door-to-door. This person earns 15% commission on all sales. So, then what happens if they are able to sell $40,000 worth of product in a one-month period? They will take home $6,000. But miss the mark? They get nothing under this model.

Drawbacks:

• The stakes are high—especially in long sales cycles or complex industries.
• Only recommended for high-volume, transactional sales where talent pools are large and turnovers are quick.

With these commission structures, your sales team can find the right balance of security, motivation, and reward. Whether they’re chasing high margins, recurring revenue, or simply trying to survive a no-salary gauntlet, there’s a model out there that can help you achieve the perfect mix for your organization.

Commission Structure Enhancements

You can transform a simple commission structure into a true motivator for your team members by introducing any one of the following elements.

Keep in mind that your plan should remain simple. If your sales team doesn’t understand the plan, it won't motivate them to close.

Sales Accelerators

This tactic uses positive reinforcement to motivate teams to reach quota. Sales accelerators are like power-ups to your commission structure.

Related article: 14 Top Sales Incentive Plan Design Tips

In a tiered or multiplier commission structure, sales accelerators are the mechanism that increase commission rates as reps attain quota milestones, or hit certain upsell quotas.

Sales Decelerators

On the other hand, you can use negative reinforcement to motivate reps to reach quota with sales decelerators. 

In a tiered or multiplier commission structure, sales decelerators decrease commission rates on deals below quota.

Or on the off chance you don't want reps to oversell, you can use decelerators to decrease commissions on deals over quota.

Draws on Commission

Think of draws on commission like pay advances on expected commissions.

Draws can help when onboarding new reps who are still getting a handle on the sales process. They are also employed in organizations with usage-based pricing where revenue isn't realized until much later.

Draws on commission can also help smooth out pay variability if you have a seasonal business.

Related article: Recoverable vs Non-Recoverable Draws

Whether a draw is paid back once commission is realized comes down to your policies. Maybe not for new reps, but certainly for revenue realized on usage.

Clawbacks

Not quite an enhancement, but a policy that can encourage higher quality sales. Clawbacks are a commission mechanism that make reps pay back commissions on deals that churn early. For example, if a rep's deal churns before four months, they have to give back the commission earned.  

SPIFs

SPIFs, also known as Sales Performance Incentive Funds or spiffs, are short-term incentives outside of your main commission structure.

A strategically planned SPIF can give your team the boost it needs during a new product launch or slow quarter.

SPIFs are most commonly given as fixed bonuses or special perks.

Sales Commission Software

Sales commissions software is a powerful tool that manages the complexities of sales compensation through automation and flexibility. You may find these features in your sales compensation or incentice compensation management (ICM) software.

1. Automated Calculations

• Feature: Handles intricate commission structures effortlessly, like clockwork.
• Benefit: Slashes manual errors, ensuring every payout is spot-on while freeing up valuable time.

2. Instant Performance Insights

• Feature: Delivers real-time, pulse-quickening metrics and earnings data.
• Benefit: Fires up motivation by clearly connecting performance to rewards, fueling a transparent and driven sales environment.

3. Rapid Plan Adaptability

• Feature: Swiftly tweaks compensation plans in sync with business shifts.
• Benefit: Keeps your strategies razor-sharp and aligned with evolving goals, ready for anything.

4. Scalable Solutions

• Feature: Expands seamlessly with your growing, ever-more-complex sales force.
• Benefit: Grows with you, accommodating even the most intricate of compensation models as your business scales.

5. Compliance and Reporting

• Feature: Generates detailed, regulation-proof reports.
• Benefit: Keeps you on the right side of the law while providing strategic insights, cutting down risks and boosting informed decision-making.

6. Seamless Integration

• Feature: Syncs effortlessly with your CRM, ERP, and beyond.
• Benefit: Creates a smooth, interconnected data flow, enhancing operational efficiency and reducing redundancies across your systems.

With these features, sales commissions software transforms how you manage incentives—precision-engineered to drive performance while staying agile and aligned with your business’s evolving needs.

What commission structure is right for you?

As with all things, the right commission structure depends on so many variables:

• Goals (profit or revenue?)
• Objectives (Product sales vs Up-selling)
• Talent pool (Skilled vs. Unskilled)
• Length of your sales cycle
• Resources
• Sense of urgency
• And so much more

Distilling down the right answer for you simply isn't possible without intimately knowing your sales process.

If you're looking for some quick answers or guidance, let us know in the chatbox at the bottom right of your screen.