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<\/a><\/p>\nYou want to give the best<\/em> talent a reason to accept a position on your sales team and stay with your company long-term. In this guide, I\u2019ll discuss the importance of a sales compensation plan, the types of sales compensation plans, and the steps you can take <\/strong>to create one of your own.<\/span><\/p>\n Table of Contents:<\/strong><\/p>\n <\/a> <\/p>\n Creating a solid sales compensation plan has tons of benefits \u2014 let\u2019s go through them together next.<\/p>\n <\/a> <\/p>\n Sales teams are known for their high turnover. The stresses of selling to uninterested prospects and the general lack of advancement opportunities can make even the most seasoned of salespeople hop from team to team.<\/p>\n One way to lower turnover is to create a sales compensation plan that adds structure to the team, differentiating between junior, mid-level, and senior reps. In doing so, you\u2019ll communicate to the reps that there are advancement opportunities within the team, and they won\u2019t feel like they should leave.<\/p>\n Pro Tip:<\/strong> With HubSpot Sales Hub\u2019s Breeze Prospecting Agent<\/a>, newer sales reps (and more seasoned ones) can sell smarter and focus their outreach efforts on the leads that matter most. Plus, they\u2019ll be able to develop personalized prospecting strategies designed to complement their efforts, helping them close deals faster and more efficiently.<\/p>\n Knowing that they could earn more if they sell more will be enough to incentivize reps. Plus, if you include additional benefits \u2014 such as an educational stipend \u2014 your reps will be way more incentivized to seek additional training, making them more effective salespeople.<\/p>\n By knowing how much you\u2019ll pay each rep, depending on their experience and performance, you can create budgets that better align with your company\u2019s financial standing. That way, you know how much of the company\u2019s earnings will be allotted for your sales reps\u2019 compensation. This will allow you to better prepare if the team underperforms one quarter.<\/p>\n The structure of a sales compensation plan varies by business and is typically based on team organization, resources, and goals. For example, one sales organization might offer a higher base salary, while another might prioritize commission based on their budget, business structure, employee needs, and team targets.<\/p>\n There should be a compensation plan for every member of the sales team based on their role, experience, length of the sales cycle, and the type of deals they engage in. Here are some other factors to consider while thinking about your sales compensation plan:<\/p>\n [Free GTM Comp Planning – Comp Engine By our Partner Betts Recruiting]<\/a><\/p>\n Before I share how to create your compensation plan, let’s take a look at some important sales compensation terms to know.<\/p>\n <\/a> <\/p>\n Depending on how you structure your sales compensation plan, the following terms and concepts may come up as you start the development process.<\/p>\n A sales quota is a time-bound revenue target set by sales managers \u2014 either individually or as a group. The most common time constraints for quotas are monthly, quarterly, and annually. They can be measured as the sales managers and company leadership see fit, whether that’s by profit, deals closed, or overall activity.<\/p>\n A sales accelerator kicks in when one of your reps hits a specific amount over<\/em> their quota. Quota attainment, number of products sold, and contract length are the most common types<\/a> of sales accelerators.<\/p>\n This type of payoff is exponential for your reps. With this compensation plan framework, they may end up with a huge commission check if they have a highly successful month or quarter (so be aware of your resources and budget).<\/p>\n For example, let\u2019s say a rep has a base salary of $100,000 and earns a 10% commission on their sales. If their monthly quota is $50,000 in revenue and they hit 110% of their quota (bringing in $55,000 in revenue), you\u2019d pay them 1.0x on their performance above 100%.<\/p>\n Essentially, this means they\u2019d earn their regular 10% commission on the $50,000 ($5,000) plus an additional 10% commission on the extra $5,000 ($500). In total, your rep would take home $5,500 in commission for that month.<\/p>\n However, if commission accelerates further for over-quota performance (e.g., 1.5x above 100%), that extra $5,000 could yield $750 instead of $500, bringing their total monthly commission to $5,750.<\/p>\n Sales decelerators have the opposite effect as accelerators \u2014 they penalize underperforming reps. A decelerator may kick in between 40% and 60% of their quota. In other words, if a rep only hits 60% of their quota, their performance would be multiplied by a decimal (like 0.5) to calculate their compensation.<\/p>\n A clawback kicks in when a customer churns (i.e., stop using your product or service) prior to hitting a specific benchmark. They cause the rep to lose their commission and are common among subscription companies in an effort to keep customer retention rates high.<\/p>\n On-target earnings (OTE) provide salespeople with a realistic view of their total compensation for a position when their expected and reasonable goals and quotas have been reached. Typically, OTE would include the base salary and the realistic commission resulting from closed deals.<\/p>\n Sales performance incentive funds (SPIFFs) or sales contests are ways to incentivize high performance among your salespeople.<\/p>\n These tactics are often used to change behavior and include monetary (such as a $500 cash prize to the first rep who closes 10 deals of a certain product) or non-monetary (a nice dinner for every team that increases their retention rate by the benchmark percentage).<\/p>\n These sales incentives and contests should run for short periods of time \u2014 about one to four weeks in total. If you run them any longer, reps will lose the necessary sense of urgency for this tactic to work.<\/p>\n Also, keep your sales contests limited. The more behaviors you reward, the likelier your team will be pulled into conflicting directions \u2014 making it difficult to drive specific outcomes.<\/p>\n Now, let\u2019s review a sales commission structure template and examples of different types of compensation plans.<\/p>\n <\/a> <\/p>\n Structuring your sales compensation plan is simple with this free template. In it, you’ll find seven different types of comp plans that could work for your business. Each of them is made up of several factors that create the total compensation plan:<\/p>\n \u00a0<\/p>\n Download the Free Template<\/a><\/p>\n These are some of the most common sales compensation factors you’ll take into account when developing your comp structure, but you may not use all of them in the same plan.<\/p>\n Below are some examples of compensation plans and how each of these elements fits into them.<\/p>\n Sales Compensation Plan Examples<\/strong><\/p>\n There\u2019s no one specific way to pay employees in sales. Many companies tailor their plans according to how they conduct business. Generally speaking, there are four main types of compensation: hourly wages, salary, commission, and bonuses. Compensation plans are more detailed and can contain different forms of commission or no commission at all. They are all tailored to the size and scope of the business it applies to.<\/p>\n The following examples include the most common types of sales compensation plans. Each example has a different structure, so you can tailor your plan to your specific sales team and business based on your needs, resources, and goals. Check them out below:<\/p>\n \u00a0<\/p>\n Create a custom version of this compensation plan with HubSpot\u2019s free Sales Compensation Calculator Kit<\/a><\/em><\/p>\n The most common sales compensation pay structure is the base salary plus commission plan. This structure provides reps with a fixed yearly base salary as well as commission. They get the security of a steady income with the economic incentive to sell.<\/p>\n In this plan, the commission percentage is lower because of the base salary.<\/p>\n To determine your base-variable (or fixed) compensation split<\/strong>, think about the following factors:<\/p>\n To determine the variable compensation,<\/strong> think about the following factors:<\/p>\n Essentially, the shorter and simpler a sale is and the less impact a rep has over the customer’s behavior, the smaller the percentage of variable compensation should be.<\/p>\n One standard ratio across industries is 60:40 \u2014 meaning 60% fixed to 40% variable. A less aggressive ratio (think 70:30 or 75:25) is common when reps are required to teach the prospect because they’re most likely selling a highly complex or technical product.<\/p>\n Account managers may have a similar ratio of fixed to variable pay, driving them to spend more time helping their existing customers than finding new ones.<\/p>\n Best for<\/strong>: Most businesses, as it provides greater clarity into expenses and allows for hiring highly-motivated, competitive salespeople while ensuring reps fulfill non-selling tasks. With this plan, you benefit from greater clarity into your expenses (since there’s less variability) and the opportunity to hire highly-motivated, competitive salespeople.<\/p>\n A base salary plus a bonus compensation plan is common when your reps tend to consistently hit their pre-set targets.<\/p>\n For example, you might pay $30,000 base and $15,000 for selling X amount per year. If you know about eight of your 10 employees will consistently hit quota, and total earnings are $55,000, you can set aside $440,000 in your annual budget for the bonuses. But again, this prevents reps from feeling any motivation to over-perform.<\/p>\n Best for<\/strong>: Companies with reps who consistently hit their pre-set targets. It offers a high level of predictability and motivation to close sales. This sales compensation plan approach offers a high level of predictability and still motivates your reps to close sales.<\/p>\n Create a custom version of this compensation plan with HubSpot\u2019s free Sales Compensation Calculator Kit<\/a><\/em><\/p>\n A commission-only structure means you pay reps purely based on their performance. If they don’t sell anything during a month, their salary is zero. If they sell $50,000 worth of products in a month, their salary may be anywhere between $15,000 and $22,500, depending on the commission percentage you offer your employees.<\/p>\n This type of plan also motivates reps by giving them the freedom to earn as much money as they can while saving you time trying to identify any poor performers on your team. However, commission-only plans can make it challenging to forecast your expenses and stick to a tight budget.<\/p>\n In terms of the commission percentage to pay reps, you may decide it’s anywhere between 5% to 45%, which is standard.<\/p>\n Additionally, the more support you expect reps to give customers (such as implementation help or account management), the higher their commission should be. Remember to factor in their level of involvement in the sale as well, meaning if they\u2019re only producing leads (rather than closing them, too), you should allocate a smaller commission.<\/p>\n Best for<\/strong>: Companies looking to minimize risk and motivate reps to earn as much as they can while saving time by identifying poor performers. Due to the simplicity of a commission-only compensation plan, you forgo a lot of risks. Plus, when your salespeople succeed, revenue increases; if they fail, you lose nothing.<\/p>\n Maybe your company will pay reps based on profit rather than sales. In other words, a rep would be compensated more for selling a product with a $2,500 gross margin than one with a $1,000 gross margin.<\/p>\n Additionally, gross margin commission plans promote the sales of specific product lines. Not all products are created equal, but paying on gross margin motivates your salespeople to sell more of your most profitable products.<\/p>\n However, there are three main things to keep in mind when it comes to gross margin commission plans.<\/p>\n Best for<\/strong>: Companies prioritizing revenue and looking to discourage discounting, promote specific product lines, and motivate salespeople to sell more profitable products. This sales compensation plan works well because it discourages discounting. Reps can become reliant on discounts to close deals, which isn\u2019t good for your business. Tying commission to the product\u2019s final cost encourages reps to give fewer and smaller discounts.<\/p>\n Create a custom version of this compensation plan with HubSpot\u2019s free Sales Compensation Calculator Kit<\/a><\/em><\/p>\n An absolute (or set rate) commission plan requires you to pay your reps when they reach specific targets or milestones. For example, you might pay your salespeople $1,000 for every new customer they obtain or 15% of upsell and cross-sell revenue.<\/p>\n However, this structure doesn\u2018t take into account market penetration or the number of opportunities. For example, one rep may be getting twice as many leads as their peer, but they\u2019d both be treated equally.<\/p>\n Additionally, you\u2019ll need to carefully consider what\u2019s best for the overall company when determining the commission. If you\u2019re trying to drive the sales of a certain product line, you\u2019ll need to compensate reps accordingly (hint:<\/strong> reps will often do whatever is most lucrative for them, regardless of greater business objectives).<\/p>\n Best for<\/strong>: Companies aiming to drive good results with easy-to-grasp plans that directly tie output to salary without setting quotas and instead focusing on benchmarks or recommendations. Because the output is directly tied to salary and there are no quotas involved, reps are usually highly motivated to perform.<\/p>\n A straight-line commission plan rewards reps based on how much or little they sell. For example, if a rep reaches 86% of their quota, they\u2019ll receive 86% of their commission. If they reach 140% of their quota, they receive 140% of their commission.<\/p>\n Although this approach is relatively easy to calculate, it\u2019s not perfect. So, what\u2019s the issue? You want to encourage over-performance as much as possible. If you\u2019re already paying base, getting a rep to hit 140% of their quota from 120% has a greater financial impact than getting an under-performer to hit 100% of their quota from 80%.<\/p>\n Plus, a rep may be just fine making 80% of their quota \u2014 you don\u2019t want to disincentivize any of your reps to sell because they\u2019re content with a lower salary (which is when you’d incorporate an accelerator).<\/p>\n Best for<\/strong>: Companies that want to encourage over-performance, as getting a rep to hit 140% of their quota from 120% has a greater financial impact than getting an under-performer to hit 100% of quota from 80%.<\/p>\n Create a custom version of this compensation plan with HubSpot\u2019s free Sales Compensation Calculator Kit<\/a><\/em><\/p>\n Unlike an absolute commission plan, a relative commission plan uses a quota or predetermined target. This target can be based on revenue (X dollars) or volume (X units).<\/p>\n When a rep hits 100% of quota, they make their OTE, which consists of either base salary plus commission or pure commission. For example, if a rep\u2019s yearly quota is $60,000, their at-plan commission is $50,000, and their base is $80,000, then their OTE would be $130,000.<\/p>\n Best for<\/strong>: Companies that want to use a quota or predetermined target based on revenue or volume, with reps making their on-target earnings (OTE) when hitting 100% of quota.<\/p>\n DrawAgainst commission plans are regularly occurring payments made in advance to the sales rep or subtracted from the rep\u2019s total commissions. While they seemingly emulate salary schedule payments, they are regular commission payouts given to the employee before they need to earn that money back. If there are remaining commissions after a specific time period, you will pay the remainder.<\/p>\n There are two main Draw Against commission plans:<\/p>\n Recoverable draw payouts are basically loans to employees that you expect to gain back from their earned sales commission. For example, if an employee draws $2,500 per month, they\u2019re expected to earn a minimum $2,500 in commission each month so your business doesn\u2019t lose money. If this threshold is not met, their debts roll over into next month\u2019s pay period.<\/p>\n Typically suitable for newly beginning sales reps, this draw is a payment you will not expect to gain back. It is unlikely for these employees to earn much in commission from the start, so use this draw until their training period is over.<\/p>\n Best for<\/strong>: Companies looking to provide regular commission payouts to employees before they need to earn that money back.<\/p>\n Create a custom version of this compensation plan with HubSpot\u2019s free Sales Compensation Calculator Kit<\/a><\/em><\/p>\n With a territory volume commission plan, sales teams work with prospects and clients in clearly defined regions. Your reps are paid on a territory-wide basis versus an individual-sale basis. Once the compensation period is complete, the total sales are split among the reps who worked in that territory.<\/p>\n Best for<\/strong>: Team-based sales organizations where each rep works towards a common goal and focuses on a specific territory or region, with commissions split among the reps working in that territory. To attract reps to this type of plan and grow your sales teams, you may offer them an attractive commission paired with a well-developed territory.<\/p>\n With a salary-only structure, you decide ahead of time how much you\u2019ll pay your salespeople. It doesn\u2019t matter how much (or how little) they sell; their take-home earnings are set.<\/p>\n A salary-only structure is fairly uncommon for sales teams. That\u2019s because, without commission, reps are usually less motivated to go above and beyond. After they\u2019ve hit quota, they may relax instead of pushing for the next deal because there’s no incentive or reason to continue onward.<\/p>\n Plus, many salespeople love the thrill of scoring commission \u2014 the high stakes and competitive nature of earning a commission is often part of the reason reps go into sales in the first place. Not to mention, your top-performing reps may just leave your company so they can make commissions elsewhere.<\/p>\n You’re likely wondering: Well, are there any positives to a salary-only compensation plan? <\/em><\/p>\n Here’s your quick answer: Yes. This type of compensation plan makes it simple to calculate sales expenses and predict hiring needs. Additionally, your reps may be less stressed because they don\u2019t have to worry about the financial consequences of missing their target or the weight of the competition.<\/p>\n Best for<\/strong>: Companies that want to simplify calculating sales expenses and predict hiring needs, with reps potentially experiencing less stress due to not worrying about the financial consequences of missing targets or the weight of competition.<\/p>\n A multiplier commission plan incentivizes sales representatives to exceed their targets and drive revenue growth. You reward reps by multiplying their commission rate when they achieve a certain percentage above their sales target.<\/p>\n For example, if a rep’s standard commission rate is 10% and they achieve 150% of their target, their commission rate might be multiplied by 1.5, resulting in a 15% commission on all sales over the target.<\/p>\n Say a rep has a monthly target of $50,000 and earns a base commission of 10%. If they sell $75,000 worth of products (150% of their target), their commission would be:<\/p>\n Best for<\/strong>: Industries with intense competition or high-growth startups. It\u2019s also effective for product launches, seasonal sales, and expansion into new markets where companies want to establish their footprint quickly. This plan encourages reps to push beyond their targets. The higher they go, the more they earn. Ultimately, it\u2019s an excellent option for companies looking to drive aggressive growth and reward top performers.<\/p>\n A milestone-based commission plan rewards sales representatives for achieving specific milestones throughout the sales process.<\/p>\n Instead of focusing on the final sale, this plan incentivizes reps to complete key activities that lead to successful deals \u2014 like setting up demos, securing contracts, or reaching revenue thresholds. Each milestone carries a specific commission amount or percentage.<\/p>\n For example, a milestone-based plan might offer:<\/p>\n This structure keeps reps focused on moving prospects through the pipeline and encourages them to prioritize high-value activities.<\/p>\n Let\u2019s say a rep sets up 10 qualified demos ($5,000), closes 5 contracts ($5,000), and generates $100,000 in first-year revenue ($5,000) in a quarter. Their total commission would be $15,000.<\/p>\n Best for<\/strong>: Industries with complex sales cycles, like B2B or financial services, where multiple touchpoints and milestones are required to close a deal.<\/p>\n Now, let\u2019s look at how to implement one of these types of sales compensation plans on your team.<\/p>\n <\/a> <\/p>\n How to Implement a Sales Compensation Plan<\/strong><\/p>\n There are dozens of potential approaches to and combinations of sales compensation strategies. To ensure you land on the best plan for your sales team, use a sales compensation planning template to calculate how much revenue you can expect and how much reps will be paid.<\/p>\n Download Now for Free<\/a><\/em><\/p>\n The first part of developing a sales compensation plan strategy includes setting your goals \u2014 laying out your business objectives is a critical part of any strategy.<\/p>\n So, here are some common primary and secondary goals of sales compensation plans for your consideration. Clarifying your priorities will help you decide how to compensate your salespeople in a way that works for your business.<\/p>\n Remember, your goals may mix the examples below or look completely different \u2014 your targets should reflect what you hope to get out of the sales compensation plan and your unique needs. Check out the chart below for some insight on how to segment these goals:<\/p>\n\n
Benefits of Sales Compensation Plans<\/h2>\n
1. Sales compensation plans create structure within the team.<\/strong><\/h3>\n
2. Sales compensation plans incentivize individual reps.<\/strong><\/h3>\n
3. Sales compensation plans help you budget better.<\/strong><\/h3>\n
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Sales Compensation Terms to Know<\/strong><\/h2>\n
1. Sales Quota<\/strong><\/h3>\n
2. Sales Accelerators<\/strong><\/h3>\n
3. Sales Decelerators<\/strong><\/h3>\n
4. Clawbacks<\/strong><\/h3>\n
5. On-Target Earnings<\/strong><\/h3>\n
6. Sales Performance Incentive Fund or Sales Contests<\/strong><\/h3>\n
Sales Compensation Structure Template<\/strong><\/h2>\n
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<\/p>\n\n
1. Base Salary Plus Commission Plan<\/strong><\/h3>\n
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<\/p>\n\n
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2. Base Salary Plus Bonus Compensation Plan<\/strong><\/h3>\n
3. Commission Only Compensation Plan<\/strong><\/h3>\n
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<\/p>\n4. Gross Margin Commission Plan<\/strong><\/h3>\n
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5. Absolute Commission Plan<\/strong><\/h3>\n
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<\/p>\n6. Straight-Line Commission Plan<\/strong><\/h3>\n
7. Relative Commission Plan<\/strong><\/h3>\n
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<\/p>\n8. \u2018Draw Against\u2019 Commission Plan<\/strong><\/h3>\n
Recoverable Draws<\/strong><\/h4>\n
Nonrecoverable Draws<\/strong><\/h4>\n
9. Territory Volume Commission Plan<\/strong><\/h3>\n
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<\/p>\n10. Salary Only Compensation Plan<\/strong><\/h3>\n
11. Multiplier Commission Plan<\/strong><\/h3>\n
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12. Milestone-Based Commission Plan<\/strong><\/h3>\n
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1. Use a <\/strong>sales compensation planner.<\/a><\/strong><\/h3>\n
Featured Resource:<\/strong> Sales Compensation Planner<\/a><\/strong><\/h3>\n
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<\/p>\n2. Determine your sales compensation plan goals.<\/strong><\/h3>\n