Sales Commission Structures

As 2025 comp plans are being finalized make sure these non-negotiables are included. ·     Simple: You shouldn’t need a physics degree from Stanford to figure out how much you’ll be paid at the end of the quarter. ·     Measurable: Reps should be able to calculate their commissions down to the penny at any point during the quarter. There shouldn’t be any surprises when they get their check. ·     Flexible: The plan must accommodate unanticipated events. ·     Profitable: The financial needs of the salespeople and company must be met. Reps should be rewarded, but not at the expense of profit margins. ·     Motivating: There must be meaningful accelerators to reward top performers and decelerators to create pain for missing goals. ·     Thoughtful: Reps will do exactly what the plan tells them to do. Be careful about the goals you set so you’re not surprised by the results. ·     Uncapped: Enough said! A good comp plan will simplify a sales leader’s job by articulating company priorities and goals and rewarding behaviors that support them. A poor plan will result in an unmotivated, internally focused team that could spiral into turnover. You need to get this right if you want any chance for success in 2025. Did I miss anything? I’d love to hear your thoughts.

I’ve built over 20 sales commission plans in my career. What frequency is best? Monthly? Quarterly? This is a question I get asked very often, so here’s my take: The general principles: 1- More often = better Sales need to taste money. The more frequently you calculate and pay out commissions, the more velocity you’ll create in your team. I’ve seen countless examples of companies that switched from quarterly to yearly and saw a slowdown in their team’s momentum. 2- Align with the sales cycle length In theory, a sales team should manage their pipeline and close deals consistently throughout the year. But when your sales cycle is 12-18 months, closing deals every month just isn’t realistic. Here’s what I usually recommend: - Sales cycle of less than 3 months: monthly - Sales cycle of 4-12 months: quarterly - Sales cycle of 13+ months: bi-yearly 👉 One move I’m the most proud of was combining a monthly commission plan with a quarterly kicker. It worked really well for motivation. Here’s how it looked: - Sales had a monthly commission plan - The problem: Too many ups and downs (one good month, one bad month) - The solution: A quarterly bonus to reward consistent performance 👉 Example: - When sales hit 100%+ of their quota over the quarter → $1000 + 20% of MRR - When sales hit 125%+ of their quota over the quarter → $2000 + 30% of MRR So you can very well combine monthly & quarterly comm plans. This combination gave the team both short-term wins and long-term goals to push for. Don’t hesitate to share your best practices for managing commission plans. ---- PS: I wrote an article on how to design a sales commission plan on the lemlist blog. Feel free to check it out.

A 12 month OTE with a minimum 18 month sales cycle isn't a comp plan, it's a resignation letter Spoke to an AE last week who just left a FinTech vendor. Two years in, not sacked but left by mutual agreement. He'd sold a few POC's, his pipeline was healthy, he was doing everything right. But the problem is that sales cycles were 18 months plus - Complex deals, Compliance, Procurement, IT, Security etc. He looked at his pipeline, looked at his OTE and did the maths. Even if everything landed eventually , he wasn't going to earn enough to make it work. Not because he wasn't good but because the comp model didn't match the sales cycle. So he walked. Now that company is hiring again - same role, same cycle, same comp structure and they'll probably lose the next person the same way. If you're selling into enterprise, you're not closing in 90 days ! - Everyone knows this. But, if your sales team can't earn properly until year three, you'll keep losing good people at month 18, right before they hit their stride. That's not a hiring problem, that's a comp design problem. Question: Is your OTE achievable inside your actual sales cycle, or is it just a number on a job spec ?

A learner asked me: "Why hasn't sales compensation changed?" Over the past decade, many software companies moved from perpetual licenses to subscription (SaaS) or consumption-based models. Yet, they often never updated how they pay sellers. The reason? They underestimate the shift. It's more than a new pricing page—it changes: 💥 First-year revenue (drops significantly) 💥Risk profile (moves to the buyer) 💥Sales cycle velocity (wins happen faster) 💥Win rate (often drops) 💥Retention rate (often drops) 💥Pipeline needs (go way up) If we ignore these changes, we close fewer deals—& the ones we do close are more likely to churn. In a modern org that recognizes the impact of this shift, sales comp will align with SaaS & consumption models, helping us emphasize retention and expansion. No more purely transactional sales—resulting in higher NRR and GRR rates. Sales training & comp plans can reward behaviors for long-term customer retention: providing incentives for expansion, usage milestones, and paying commissions in phases. 5 Key Reasons Sales Comp Is Evolving: 1. Revenue realization over time In a subscription or consumption model, revenue typically trickles in monthly (or as usage occurs) rather than arriving in a large lump sum at the time of purchase. Because revenue is now recognized (and renewed) over time, sales compensation plans increasingly need to focus on ongoing customer impact rather than a closing that one-time deal 2. Emphasis on customer retention and expansion With recurring revenue, a customer’s lifetime value (LTV) depends on continuous renewal & potential expansion. Many companies now design incentives that encourage sellers to bring in high-fit customers who are likely to renew and grow rather than just close the biggest initial deal. 3. Shared accountability with Customer Success In a subscription world, retaining and expanding customers typically falls under CS, not sales. Comp plans increasingly should align both sales and CS teams around the same goal: driving recurring revenue. 4. Longer sales cycles Today, the buying process may involve a pilot a solution before committing to a bigger spend. Because deals can be smaller up front (land) but scale over time (expand), sellers need comp structures that reward nurturing and growing accounts rather than focus time only on new logos. 5. Risk-Sharing and Delayed Commission Some orgs now pay sellers a portion of their commission upon initial signing and another portion when customers achieve a milestone like first impact, a usage milestone, or a renewal. This ensures the sales does their part to ensure a high customer-solution fit. This helps align all team members on the primary element of growth: recurring impact. Ultimately, sales comp should align with key metrics (like Net Revenue Retention). That’s how we match the realities of this monetization shift—focusing on retention, expansion, and customer impact. We’re getting there...slowly but surely. 💪

The 5 Pillars of Deal Structure: 1. Cash at close. Inversely correlated with valuation (the less cash the seller requires upfront, the higher total value you are willing to pay, and vice versa). No skin in the game from seller. 2. Seller note. Guaranteed future payment, senior to all equity. Usually 0-20% of total consideration. A seller willing to do 40-100% seller financing (very rare) could command a higher valuation (“I can pay you a billion dollars; one dollar per day for a billion days”). Moderate skin from seller. 3. Earn-out. Contingent on future performance. Best way to bridge the gap if negotiations are stalling. Meaningful skin from seller. Pro tip: base it on revenue (= less manipulative/controversial than gross margin or especially EBITDA). 4. Rollover equity. Usually 0-20%, but occasionally up towards 49%. Strong alignment with seller (the more rolled equity, the better). 5. Compensation for continued employment. This is most applicable for smaller deals (e.g., add-on acquisitions) - somebody who just cashed out $$$$ doesn't care as much. Emotionally important as many people like to have a fixed monthly income.

#Sales compensation is the largest GTM investment most B2B companies make. Yet we keep repeating mistakes in their design👇 In a recent webinar with my partners over at Qobra, a few comp plan mistakes we discussed live: ❌ 5-6 metrics per comp plan (way too many) ❌ Individual metrics worth <20% of comp (doesn't drive behavior) ❌ Reps building spreadsheets to calculate their own pay ❌ KPIs that individuals can't actually influence The cost? Confused reps, misaligned incentives, and your best performers leaving Here's a framework for better comp designs 1️⃣ Role Design First - comp plans START with nailing the role itself and its influence on the deal lifecycle → Hunter vs farmer? Full cycle vs specialized? → What behaviors drive business goals? → What can this person actually influence? 2️⃣ Maximum 3 Metrics (20% Rule) - keep it simple → Each metric must be worth 20%+ of variable comp → Less than 20%? Reps will ignore it → More than 3? You're creating confusion, not alignment 3️⃣ Simplicity Wins - no PhDs to explain comp plans → If reps can't explain it without RevOps help, it's broken → Complexity doesn't equal sophistication 4️⃣ Curves and Accelerators Matter → 30% attainment shouldn't pay the same rate as 110% (set tiers!) → Reward high performers, pressure underperformers 𝗧𝘄𝗼 𝗗𝗶𝘀𝘁𝗿𝗶𝗯𝘂𝘁𝗶𝗼𝗻 𝗧𝗮𝗿𝗴𝗲𝘁𝘀 𝘁𝗼 𝗠𝗼𝗻𝗶𝘁𝗼𝗿: 📊 Target achievement: 80% of salesforce hitting 80%+ of quota 📊 Comp distribution: Top 10% earning 3x the average rep If you're way off, your plan design or quota setting has issues 𝗧𝗵𝗲 𝗚𝗮𝗺𝗶𝗻𝗴 𝗧𝗿𝗮𝗽: Early-period accelerators sound great in theory. In practice? Reps sandbagged deals at period-end to capture the bonus. Always test for unintended consequences 𝗪𝗵𝗮𝘁 𝗔𝗰𝘁𝘂𝗮𝗹𝗹𝘆 𝗪𝗼𝗿𝗸𝘀: Annual plans > Monthly (reduces gaming, creates natural incentives) [especially for longer sales cycles and mid-market + enterprise segments] Quarterly reassignments for book changes (easier administration) [particularly for hybrid or farmer roles] Align metrics to actual influence (not corporate vanity metrics) Good luck out there for your comp designs Happy to help and chat about comp plans Go forth and operate 

One of my first moves as Chief of Staff: fix the sales commission structure. Most companies pay lower commissions on renewals. 
They think renewals are easy and automatic. That’s bullsh*t. Renewals face churn risk every cycle.
 Customer success can drop the ball.
 Product bugs appear.
 Competitors undercut.
 Budget cuts hit. Economic shifts kill deals.
 Sales owns the outcome but controls almost none of it. I push for the same commission rate on renewals as the initial close.
 Better: pay on total contract value (TCV) from day one.
 Initial sale + all renewals and expansions at the same rate. Why it works: Reps stay engaged through the life of the account They fight harder to prevent churn They upsell naturally because it pays the same Team morale stays high; no resentment over “easy money” tiers Results: First: switched to flat 20% on TCV. Renewal rate rose 18% in 12 months. Pushed clients into 3 & 5 Year deals. Second: same rate on initial and renewal. Net retention jumped from 92% to 134%. Reps closed 25% more expansions. Your competitors cut renewal commissions.
 They lose deals they could have saved. Pay full rate on TCV.
 Align incentives with reality.

5-steps to a winning sales pay strategy (Avoid costly compensation mistakes) Here’s a clear and actionable 5-step guide to building a winning sales compensation strategy one that motivates your team, aligns with company goals, and avoids costly missteps: 1. Align Sales Incentives with Business Goals Why it matters: Compensation drives behavior. If your plan rewards the wrong metrics, you’ll get the wrong results. ✅ Do this: Define key business objectives (e.g., new customer acquisition, retention, upselling). Tailor incentives around activities that move the needle (not vanity metrics). Involve leadership to ensure the strategy aligns with broader company priorities. 🚫 Avoid this: Using a generic comp model that doesn’t reflect your sales cycle or growth stage. 2. Keep it Simple (but not simplistic) Why it matters: Complexity confuses. If your team doesn’t understand how they earn, they won’t be motivated. ✅ Do this: Use clear formulas and payout structures. Create tiered commissions or accelerators that are easy to grasp. Include examples in onboarding and sales enablement materials. 🚫 Avoid this: Overly complex SPIFs, multi-variable quotas, or hidden clawbacks. 3. Differentiate Roles, Reflect Responsibilities Why it matters: Not all sales roles are created equal. A blanket approach causes friction and underperformance. ✅ Do this: Design separate plans for hunters (new biz), farmers (account managers), and specialists. Ensure total comp is fair based on deal complexity, sales cycle, and contribution to pipeline. 🚫 Avoid this: Paying everyone the same or rewarding support roles as if they’re closers. 4. Monitor, Model, and Stress-Test Why it matters: Even a great-looking plan can fail in the wild. You need to model outcomes and protect against over/underpayment. ✅ Do this: Run historical data through your comp model. Simulate various performance levels (low, mid, high) to check cost impacts. Include finance to keep incentive costs within budget. 🚫 Avoid this: Launching a new plan without modeling or safeguards. 5. Review, Iterate, and Communicate Why it matters: Market conditions shift. Your comp plan needs to evolve too with clear, frequent communication. ✅ Do this: Review quarterly or bi-annually with reps and managers. Gather feedback and adjust when needed (especially for new products or markets). Celebrate transparency and fairness it builds trust. 🚫 Avoid this: Making changes without explanation, or waiting until reps complain to fix things.

Is Your Commission Plan Driving Sales—or Driving Sales Reps Away? How can you ensure your commission plan incentivizes performance, retains top talent, and drives revenue growth? Here's what you need to consider. 🎯 1. Clarify the Goals and tie them to the Rewards You want your reps to hit the quota in a certain way. ARR matters but it’s not the only way to go. Multiyear deals, Payment terms (upfront vs monthly), New Product, Contract Value, etc. all this matters as well. ✅ Pick 3 items maximum and tie them to the rewards. ✅ Goals & targets must stand in 3 bullets points only. It gets even more complex for SDRs and CSMs, where even more KPIs exist. So make sure you select only the ones that actually matters. 💰 2. Choose the Right Commission Structure Not all commission structures are created equal. The right approach depends on your sales cycle, team roles, and business model. Here are some effective structures: 🔹 Tiered Commission – Drives overperformance through increasing rates at higher targets 🔹 Thresholds & Cliffs – Protects from paying in case of underperformance, but can create side effects 🔹 Kickers & Boosters – Accelerates the commissions if additional conditions are met (multi-year, etc.) The key? Match the structure to your team's goals to drive the right behaviors. ⚖️ 3. Promote Fairness and Transparency Nothing kills motivation faster than unclear commission calculations. When sales reps don't trust the system, they focus more on questioning their earnings than closing deals. 🔹 Make commission structures easy to understand 🔹 Set clear, predefined rules that eliminate disputes 🔹 Offer real-time visibility into earnings and targets 📈 4. Align the Plan with Strategic Priorities Your commission plan should drive the right kind of sales, not just any sales. Consider your priorities: ✔ Expanding into new markets ✔ Increasing recurring revenue ✔ Driving long-term customer retention Your commission structure should support these goals. For instance, if retention matters most, reward renewals more than expansion for Accounts Managers. ⏳ 5. Simplify Administration & Automate Calculations Manual commission management wastes time and invites errors. Here's where modern tools make a difference. Tools like Qobra can: ✅ Automate commission calculations ✅ Provide real-time dashboards for reps ✅ Reduce errors and disputes The outcome? More time selling, less time wrestling with spreadsheets. 🔄 6. Be Flexible & Adjust Regularly A commission plan isn't static. As markets shift, business goals evolve, and sales strategies change, your commission structure should too. 📌 Gather regular feedback from your sales team about what works 📌 Fine-tune targets, accelerators, and commission rates to maintain motivation 📌 Experiment with new structures to optimize results The most effective commission plans evolve alongside your business growth. 💬 How does your company handle sales commissions? Share your experiences in the comments!

In recent weeks, I’ve had a surge of inquiries about structuring commission and OTE (On-Target Earnings) for Sales Executives and BDMs. It’s a crucial topic—get it right, and you’ll attract and retain top talent. Get it wrong, and you risk demotivated sales teams and missed targets. So, how should you approach it? 1. Start with the Total Earning Potential (OTE) OTE is a combination of base salary and commission. A competitive OTE should align with industry standards and reward high performers. The typical ratio varies: ✅ 50/50 Split – Common in enterprise/B2B sales. ✅ 60/40 or 70/30 – More common for transactional sales, where a higher base ensures stability. 2. Define Clear, Attainable Targets A common mistake is setting unrealistic sales targets, leading to disengagement. The best practice? 🎯 Set a realistic baseline target that at least 60-70% of your team can hit. 🎯 Provide accelerators for over-performance (e.g., higher commission rates after 120% of quota). 3. Choose the Right Commission Model Different structures work for different sales cycles: 💰 Fixed % on Revenue – Simple and effective for high-margin products. 📈 Tiered Commission – Motivates overachievement (e.g., 5% up to target, 10% beyond). 🏆 Profit-Based – Ideal when margins vary widely. 4. Avoid These Common Pitfalls ❌ Capping Commission – Nothing kills motivation faster! ❌ Complex Structures – If your team can’t calculate their earnings easily, it’s too complicated. ❌ Changing the Plan Mid-Year – This damages trust and retention. 5. Regularly Review and Benchmark Against the Market The sales landscape is constantly evolving. Reviewing your commission plan against market trends and competitor packages ensures you remain competitive. 💡 Looking to structure an effective commission plan for your sales team? Let’s talk—I’ve helped many companies find the right balance to drive performance while attracting top talent. What’s working for your team? Drop a comment below! 👇