Sales Commission Structures: Finding the Right Fit for Your Team

Written by

Shanel Pouatcha

Updated

December 3, 2025

Sales Commission Structures: Finding the Right Fit for Your Team

Table of content

Choosing the right sales commission structure for your team is a critical decision that directly impacts your company’s bottom line, and your team’s ability to attract top talent. Balancing the dual forces of financial security and performance-based earning potential is the art of effective compensation design.

In this article, we will dive deep into five different commission structures to help you and your company make informed decisions about your sales team’s incentive plan.

Understanding Sales Commission Structures

A sales commission structure is a plan that your business puts into place to pay salespeople based on their performance. This plan can incentivize your sales team to close more sales while also generating steady revenue and reducing your employee turnover rate.

Calculating sales commission is simple: multiply the sales amount by the commission rate percentage. For instance, if your salesperson earns a 5% commission on $100,000 in sales, their commission is $5,000. However, structuring and communicating this opportunity is key to influencing your sales team’s motivation and output.

Five Types of Commission Structures

There are five different types of sales commission structures that every sales leader should know about. Each commission structure is best suited for specific business types, and sales environments:

1. Base rate only

The base rate-only commission structure provides salespeople with a fixed hourly or salaried wage with no additional commission. It can be effective in removing uncertainty from their income, but also removes the incentive to go above and beyond on targets. The base salary-only structure is ideal for teams whose primary responsibilities include customer education and support, rather than deal closing, such as inbound-lead driven teams or customer success teams. However, it is rarely used for sales teams whose primary function is to drive revenue growth since it eliminates reps’ motivation to sell more or upsell customers.

2. Base salary plus commission

The most widely used structure across industries is base salary plus commission. It provides salespeople with a guaranteed income floor, and performance incentives, typically in a 60:40 split with base salary comprising 60% of OTE (On-Target Earnings) and commission making up the remaining 40% according to Indeed’s 2025 salary research. However, companies have used variations of 50:50 and 70:30, depending on product complexity and sales cycle length. A recent study by CaptivateIQ found that the hybrid model is especially effective at attracting skilled professionals who seek financial stability in addition to earning potential.

The benefits of a base salary plus commission are the fact that it provides your salespeople financial security by allowing them to cover basic living expenses while still earning significantly for strong performance. It also attracts top talent by signalling to potential candidates that your company values retention and provides predictable income during dry spells. It also motivates performance through commission while also preventing the burnout and stress that pure commission structures can cause since sales reps have a guaranteed base salary to fall back on and aren’t quite as stressed over every paycheck.

3. Commission-only

The commission-only structure pays salespeople a predetermined percentage of each sale they make with no base salary. It’s an attractive option for early-stage startups without the cash flow to pay a base salary or other fixed costs. However, it also creates the most risk for sales reps since their income directly corresponds with their performance and often results in high turnover in sales teams. The upside for commission-only is that companies only pay their salespeople when the rep generates revenue which is attractive for companies during bootstrap stages. The downside is that it significantly narrows your candidate pool and you need to ensure success through solid training programs.

4. Tiered or accelerated commission

Tiered or accelerated commission structures are designed to increase the commission percentage as salespeople exceed higher sales thresholds. For example, a rep might earn a 5% commission on deals up to $50,000, a 7% commission on deals between $50,000 and $100,000, and a 10% commission on deals over $100,000. According to our recent research, 82% of companies have accelerators that boost payouts by 20-30% once quota is surpassed making this the most popular sales commission structure as companies scale.

A key benefit of a tiered or accelerated commission structure is that it motivates reps to close larger deals since the earnings increase on larger deals pushes reps to target bigger opportunities. It also encourages overachievement since hitting 120% of quota for example, might trigger a 1.5x-2x increase in rate on all incremental sales above and beyond quota.

5. Residual or recurring commission

Residual or recurring commission structures pay a commission as long as the accounts continue to generate revenue. This creates stable income streams for salespeople while also incentivizing customer retention and relationship building. For example, an insurance salesperson earns a commission every month the client pays their insurance premiums, or a SaaS account executive continues to earn a commission on subscription renewals. This structure has transformed sales roles from transactional to relationship-focused and is the best fit for subscription businesses, insurance agencies, and any company with recurring revenue models.

How to Choose the Right Commission Structure for Your Team

The right commission structure isn’t one-size-fits-all. Several key variables should influence your decision, and understanding how each factor impacts your sales team’s motivation and financial viability is essential to making the right choice for your organization:

Sales Cycle Length

The length of your sales cycle heavily influences which commission structures are viable for your company since short sales cycles enable higher commission percentages. Your sales reps close more deals in a shorter period and spend less time away from commission-earning activities in between sales.

Enterprise sales with multi-month sales cycles necessitate a base salary component to keep your reps afloat during the long sales cycle, or risk losing them to churn since the income uncertainty is too high.

Product Margins

Product margins directly impact your commission rates since high-margin products allow for higher commission percentages while low-margin products benefit from a base salary focus and require pre-sale education.

For example, SaaS companies with subscription-based pricing typically have a base-to-variable split of 53:47 rather than the traditional 60:40. This is due to the need for faster commission payouts to create urgency.

Market Opportunity

Market opportunity can vary greatly by sales territory, making tiered or quota-based structures more equitable than flat percentages across all regions.

Sales team size is also a factor since smaller teams can handle more sophisticated tiered structures while larger teams benefit from simplicity and consistency.

Budget Constraints

Your budget and financial constraints are a critical consideration since commission-heavy plans require predictable revenue streams, whereas hybrid models spread costs more evenly.

Commission Structure Best Practices

After selecting your structure, effective communication becomes crucial. Ensure your sales team understands exactly how they earn their money through simple documentation with worked examples showing reps how their performance will directly translate to income:

Align Incentives

Align incentives with your sales strategy by ensuring that commission targets are driving behaviours that support your long-term growth goals rather than incentivizing short-term revenue grabs.

Transparency

Be transparent on how quotas were set and why specific commission rates were chosen. This builds trust in the fairness of your system and pay plan. Train managers to explain commission plans clearly and handle earnings-related conversations with consistency and professionalism.