Only about 45% of sales reps consistently hit their quota, according to Bridge Group research. The other 55%? They’re grinding through calls, follow-ups, and proposals without ever seeing the upside their comp plan promised them.

That gap usually points to a broken commission structure.

I’ve built 30+ successful sales commission structures for BDRs, SDRs, AEs, Sales Managers, VPs of Sales, and CROs. In this post, I’ll walk you through the exact step-by-step process I use to design a commission plan that actually motivates reps, aligns with business goals, and pays out fairly. You’ll also get a breakdown of the main commission structure types and real benchmark data so you can sanity-check your numbers.

Download the following template before we get started so you can follow along.

A sales commission structure is a predetermined plan or framework to compensate sales reps based on their performance in generating revenue or closing deals.

It outlines the rules, criteria, and rates by which salespeople earn commissions for their sales activities.

The goal of a sales commission structure is to align the interests of sales professionals with the objectives of the organization, motivate them to achieve sales goals, and reward them fairly for their contributions to revenue generation.

When it comes to sales, there’s no denying the power of a strong incentive.

The reality is that sales is a tough gig. The average annual turnover rate for sales positions is approximately 35%, nearly three times the average turnover rate of 13% across all industries. (Sales Compensation Statistics 2026: Trends & Insights) And according to Fullcast, 64% of sales professionals would leave their positions for higher pay. That’s the retention pressure you’re designing against.

Your team is on the front lines, overcoming objections, building relationships, and closing deals.

In this challenging environment, a well-structured commission model can be just the motivation they need to push harder and deliver results that impact your bottom line.

A good commission structure is a framework that encourages and rewards the right behaviors.

If it’s too easy, it won’t push your sales team hard enough.

If it’s too harsh, it could discourage them.

The goal is to find the right balance that motivates your team to exceed their sales goals.

A commission structure is built for sales, not for finance or ops. It’s about reinforcing the habits and behaviors that drive sales success.

A common pitfall is overcomplicating the rules, ending up with a 20-page document.

Not only is this confusing for your sales team, but it also creates unnecessary friction when it comes to implementation.

The best structure is simple and explainable in 3 minutes. Think of it as the ‘5-year-old test’.

If a 5-year-old can get it, you’re on the right track.

A commission plan reflects your company’s priorities, not just individual rep pay.

You don’t want your sales reps to devote their effort and time to tasks that may not be a top priority in the company.

Selling multi-year contracts? Prioritizing upfront payment? Launching a new product or targeting a specific customer category?

Your commission plan should incentivize your top priorities.

By adjusting the commission rates, you can guide your team toward the goals that matter most to your business.

You want to hit that ‘just right’ balance.

Too generous, and you might put a strain on your resources.

Too stingy, and you risk demotivating your sales team.

A fair commission plan rewards good performance and keeps your team motivated.

In the following sections, you’ll get a step-by-step process to design your own sales commission model that’s simple, fair, motivating, and aligned with your business goals.

Before you build your plan, you need to pick the right model. Most commission plans fall into one of five categories. Here’s a quick breakdown of each, with the trade-offs.

This is the most common model in B2B sales. Reps receive a fixed base salary plus a variable commission tied to their sales performance. The base-to-variable pay split is commonly 50:50 or 60:40. (Average Sales Commission Rates by Industry in 2026)

When it works: You want to attract strong candidates who need income stability while still tying a significant chunk of pay to results. This is the model we’ll build step-by-step in the rest of this article.

No base salary. Reps earn 100% of their income from commissions. The upside can be massive, but the volatility scares away a lot of talent.

When it works: Short sales cycles, high-margin products, or contractor/freelance sales roles where reps control their own pipeline from start to finish.

The commission rate increases as reps hit higher sales thresholds. For example, 8% on the first $500K, 12% on everything above that. This is how you build acceleration into the structure (more on this in Step 6).

When it works: You want to reward over-performance aggressively and push reps past quota, not just to it.

Reps continue earning commission on ongoing revenue from accounts they closed, typically on renewals or subscription payments.

When it works: Recurring-revenue businesses (SaaS, insurance, managed services) where you want reps invested in customer retention, not just initial close.

Reps receive a guaranteed “draw” (advance) against future commissions. If their earned commission exceeds the draw, they keep the difference. If it doesn’t, the shortfall may carry forward as a balance owed.

When it works: New reps ramping up, or roles with long sales cycles where months can pass before the first deal closes. Be careful here: draw structures that carry forward debt can feel punitive and hurt morale.

Most B2B SaaS teams land on a base-salary-plus-commission model with tiered accelerators. That’s the structure we’ll build below.

On-target earnings, or OTE, is the total compensation a rep can expect to earn when they meet 100% of their sales quota.

It consists of their fixed base salary plus potential commission.

For instance, a salesperson with a salary of $100,000 and an equal amount in potential commission would have an OTE of $200,000.

If they hit their quota, they essentially double their salary.

The potential commission is tied to the rep’s quota, or annual sales goal.

This quota measures their performance and determines their commission.

Continuing with our example, if the salesperson’s OTE is $200,000 and their quota is $1 million in Annual Recurring Revenue (ARR), they’d need to hit that $1 million mark to double their salary.

If they fall short, their commission shrinks proportionally. If they exceed it, that’s where accelerators come in, but we’ll get to that later.

Even though this might seem basic, it’s an essential first step.

Defining the right OTE and sales quota can set the tone for your entire commission plan. If you’re tracking quota attainment across your team, this is the number every downstream calculation depends on.

The base commission rate is the core of your commission structure.

It doesn’t involve any accelerators, decelerators, or thresholds.

Nor does it take into account particular incentives like selling multi-year contracts, obtaining upfront payments, or launching new products.

These additional elements will come into play later. Right now we’re sticking to the basics.

The commission rate offers a simple benchmark that your employees can understand and work towards, and your finance department can effortlessly calculate.

The formula is simple: Divide the target variable pay by the sales quota.

For example:

If you have a rep with an OTE of $200,000 (made up of a $100,000 base salary plus $100,000 in potential commission) and a sales quota of $1 million, the commission rate is calculated as follows:

So, in this case, it is 10%.

Once you’ve calculated your base rate, sanity-check it against the market. Most sales commission rates fall between 5% to 20% of sale value, with Software as a Service (SaaS) companies often landing around 10% (Sales Commission Rates - Commissionly.io) (Commissionly, 2026). More specifically, SaaS companies typically pay 8%–12% commission on new ARR or bookings (Average Sales Commission Rates by Industry in 2026) (Everstage, 2026). Account Executives closing new business sit at the higher end; renewal or expansion reps earn 2%–5%. (Average Sales Commission Rates by Industry in 2026)

Looking at gross margin instead of revenue? The average sales commission rate in 2026 remains between 20–30% of gross margins (Average Sales Commission [2026] - Zippia) (Zippia, 2026).

If your calculated rate lands well outside these ranges, revisit your OTE-to-quota ratio before moving on.

Sales priorities should align with your company’s overall objectives.

Are you launching a new product? If so, driving sales for that product becomes a priority.

Expanding into a new market? Then that new market should be at the top of the list.

If your goal is to boost upfront cash flow, securing upfront payments can be a priority.

Here are some examples of common sales priorities that can be reflected in your commission plan:

If you’re launching a new product or feature, you may offer more (or less) commission to incentivize your sales team to push it.

If you’re expanding into a new market, you might introduce these territories into your commission plan to motivate sales in different regions.

Encourage upfront payments by offering higher commissions for quarterly or yearly payments.

Compensate reps for securing long-term contracts.

You may want to incentivize your team to secure larger (or smaller) contracts by offering a different commission rate.

Often, companies pay higher commissions on new business, which can be more challenging to land than upsells or expansions. When reps are targeting the right accounts, the payoff on new-logo commissions is worth the premium.

You can include factors such as the presence of a Sales Development Representative (SDR) or Business Development Representative (BDR) on a deal. However, I advise caution. This can lead to undesirable behavior and conflicts of interest.

It’s generally more effective to reward those who have contributed to the deal, but keep the commission percentage consistent for the salesperson, regardless of whether an SDR or BDR was involved.

Avoid factors such as sales seniority as sales priorities. Your salary structure should already account for this, and a sale’s value shouldn’t depend on the seniority of the salesperson who closed the deal.

In practice, you should select one or two priorities each year to focus on.

For each priority, you’ll define how to adjust the commission rate when contracts meet the specified criteria. We’ll cover the specifics in the next step.

After identifying the key priorities for your sales team that align with your broader business goals, the next step is to clearly define objectives for each of these priorities.

The purpose of this step is to translate your priorities into tangible, measurable goals.

By setting specific objectives, you make it easier for your sales team to understand what they need to achieve and how their efforts will contribute to the company’s overall success.

A practical approach to defining objectives is to think in terms of percentages of total sales.

For example, if your priority is to increase the sale of multi-year contracts, consider what percentage of total sales you want these contracts to represent.

To do this, you’ll need to look at your historical data and consult with your sales leadership team to understand realistic goals.

Let’s say you’ve historically sold about 10% of multi-year contracts, but you’d like to push this up to 20% for the next year. If your total sales objective is $1 million, that means you’re expecting 20% of that (or $200,000) to come from multi-year contracts.

Remember, the goals you set for each of your priorities should be SMART. Specific, Measurable, Achievable, Relevant, and Time-bound.

In this example, your SMART goal might be: “Increase profits from multi-year contracts to $200,000 by the end of the fiscal year.”

Once you’ve defined the objectives for one priority, repeat the process for the other. The key is to be clear and explicit about what you’re expecting from your sales team.

By clearly defining the objectives for each priority, you’re aligning their efforts with your business strategy and making sure their hard work contributes to what matters most.

A well-defined target is much easier to hit!

The final step is to define the commission rate that will be paid out to the reps, based on what is sold.

This aspect of your commission plan is key to its success, as it directly impacts how frequently your sales team can expect to receive their incentives, which influences their motivation and performance.

While sales objectives are usually defined yearly, some companies opt for a more variable approach, with objectives that change each quarter.

However, frequently changing objectives can require a substantial amount of maintenance and can potentially lead to confusion or frustration within your sales team. Quite frankly it’s not worth it.

A more practical approach might be to set yearly objectives, which can be broken down into quarters or months to accommodate seasonal variations in your sales cycle.

For example, if your business tends to be slower in August and busier in December, you might want to adjust your monthly sales targets accordingly.

Example of Seasonality:

An important aspect of your commission plan is the frequency at which commissions are paid out. It’s often beneficial to pay commissions as frequently as possible as this can drive salespeople’s motivation and focus on shorter-term goals.

However, factors such as the length of your sales cycle might prevent you from making monthly commission payments.

As a rule of thumb, it’s good practice to align commission payments with your sales cycle but avoid extending the commission period beyond a quarter.

Example of Commission Payment Frequency Based on Sales Cycle:

Here, ACV stands for Annual Contract Value, which refers to the average yearly contract revenue from each contracted customer.

Another good practice is to pay commissions whenever deals are signed, and then calculate accelerators or decelerators (which we will discuss later) at the end of each commission period.

This approach essentially treats these payments as an advance on the commission, but it allows your sales team to be rewarded more immediately for their hard work, which can drive motivation and performance.

A threshold is the minimum level of sales that a salesperson needs to achieve before they start earning a commission. Some companies set the threshold at a level that covers the cost of the salesperson.

For example, if a salesperson is paid $100K per year and costs $125K including overheads, they will start receiving commissions once they achieve $125K in sales.

However, while this approach may be logical from a financial perspective, it can potentially reduce the motivation of salespeople.

Mainly because it could lead to behaviors such as “fridge” deals, where salespeople delay closing deals until the next period if they anticipate they won’t reach the threshold in the current period.

This can delay revenue and even result in lost deals. Hence, it’s generally recommended to avoid using thresholds.

Acceleration and deceleration in a sales commission plan refer to increasing or decreasing the commission rate based on quota attainment.

A common method to implement this is by creating a table that correlates quota attainment ranges with commission rates.

The next step is deciding whether the acceleration or deceleration applies to the entire commission or just the base rate.

For simplicity, it’s generally recommended to apply it to the entire commission.

Here’s an example:

This is where tracking rep performance in real time matters. If reps can’t see where they stand against quota mid-period, acceleration loses its motivational pull. The whole point of accelerators is to make reps feel the math shift when they’re on a hot streak.

OTE is the total compensation a sales rep can expect to earn when they hit 100% of their quota. It includes both the fixed base salary and the variable commission. For example, a rep with a $100,000 base and $100,000 in potential commission has an OTE of $200,000.

There’s no single “right” number. Average sales commission rates typically range from 5% to 20%, varying significantly by industry, deal size, and sales cycle length. (Average Sales Commission Rates by Industry in 2026) In SaaS, 8–12% on new ARR is the most common range. The real question is whether your rate, combined with your quota and base salary, produces an OTE that’s competitive for the role and market you’re hiring in.

At its simplest: Commission = Deal Value × Commission Rate. If a rep closes a $50,000 deal at a 10% commission rate, they earn $5,000. From there, layers like accelerators (for over-quota performance), priority multipliers (for multi-year deals or new products), and payment timing rules adjust the final payout. Steps 2 through 6 in this guide walk through each layer.

A base salary is guaranteed pay, period. A draw is an advance against future commissions. If a rep’s earned commissions don’t cover the draw amount in a given period, the difference may carry forward as a balance owed (recoverable draw) or be forgiven (non-recoverable draw). Draws are most common during ramp-up periods for new hires.

Here’s the quick recap of the six-step process:

The template linked at the top of this article walks through every step. Download it, plug in your numbers, and stress-test the output against a few real rep scenarios before you roll anything out.

One more thing. Your commission plan can be perfectly designed on paper and still fail if reps can’t track their own progress against quota. The motivation that accelerators create depends on visibility. When your team is running outbound sequences (cold email, LinkedIn, calls) and booking meetings, they need to see that activity converting to pipeline and quota credit in real time.

That’s where a tool like lemlist fits in. It helps your reps run multichannel outreach, automate follow-ups, and track pipeline activity in one place, so the effort that feeds your commission structure is measurable from day one. Rated 4.6/5 on G2 from 2,000+ reviews.

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