What is the standard commission rate for business-to-business (B2B) sales?
We get this question a lot.
While we wish there were a clear-cut answer to the average sales commission rate for B2B sales, the reality? Commission rates vary widely depending on your company's unique coverage model: how you organize your direct-, indirect-, overlay-, and channel sales resources to your target markets with your unique product and service offerings.
There are many valid ways to deploy sales teams — even within the same industry.
Therefore, when it comes to sales compensation, there is no simple answer — the details make all the difference. That’s why exploring different options and being mindful of how they impact your business pays off significantly!
So what’s the average sales commission rate in the B2B space?
The short answer is that the standard commission rate for SaaS sales typically begins at 10%. Jason Lemkin, CEO and Founder of SaaStr, says a sales rep needs to generate 4-5x their total compensation to “make your business model work.” And we agree.
Most B2B companies at scale end up roughly with a 10%/10% model. Sales reps make about 10% of their quota in base and 10% in commission. With their quota 4x-5x their “OTE” (base + commission).
But don't let the law of averages alone drive your pay strategy. It's going to depend on:
- How "average" your market coverage is within your industry
- The size of your company: the bigger the company is, the more likely you'll have a lot more commissioned roles playing a part — both internally and externally (e.g., channel partners, system integrators, and the like)
The lowest commission rate we’ve seen is 5-7%, but this number can shoot up to 30%.
Companies with mature markets and an existing customer base (with a steady revenue stream) will expect higher quotas than growth companies penetrating new markets. As a result, your quotas — and, therefore, your rates — will vary accordingly.
Align your pay strategy with the sales effort required by your reps: The more the individual is driving sales, the lower the quota will be (and therefore, the higher the commission rate to pay them competitively).
Conversely, as your business matures and your markets become more captive — or if you have strong channels that help drive revenue — your quotas will go up, and your rates will go down.
If you want the extended version of our answer, here it is.
What are the key factors that determine standard commission rates?
There’s often a great deal of mystery surrounding commission rates when it comes to incentive compensation plans. What is a good B2B commission rate? Why start at 10%? How is the base + commission split determined? What’s the average quota-to-OTE ratio?
There are several factors (and benchmarks) to consider when determining the sales commission rate.
Factor #1: When it comes to On-Target Earnings (OTE), many companies abide by a 50/50 split between base salary and commission — but there are some exceptions. The deciding factor here is "how much control does the rep have over their performance?" The more an individual can drive sales through talent and effort, the more pay you can/should put "at risk.”
A 50/50 pay mix is common for new product categories where the market opportunity is wide open. However, as markets and product offerings mature and competition gets steeper, the most appropriate pay mixes shift to 60/40 (base to incentive) for AE's or even 70/30 for Account Manager roles.
Most sales reps (62%) have a 10-25% portion of compensation due to team-based incentives, keeping the focus on individual achievement.
Factor #2: The most frequent quota-to-OTE ratio — a.k.a. the proportion of an individual's sales quota to their expected earnings for — both sales reps (43%) and managers (44%) is 10-20x. This ratio is often used to determine the feasibility and difficulty of reaching a sales target or quota.
Historically speaking, the rule of thumb is between 4-6x. However, there are several reasons why the quota-to-OTE ratio might be higher today:
- High sales targets: If the quota is set high, it’ll naturally result in a higher ratio (math!). This could be due to company objectives or expectations around sales performance.
- Low OTEs: If the expected earnings are low, it will also result in a higher ratio. This could be due to a low base or commission rate.
- Competition: If a company's salesforce is competing for customers with other companies selling similar products or services, it may be harder to make sales and meet targets.
- Complex sales process: If salespeople need to go through a complicated sales process, they may need more time and effort to make sales and meet their goals.
- Unforeseen market conditions: Salespeople may also need help meeting their targets if they are affected by unpredictable market conditions, such as economic downturns or changes in customer demand.
Here are some other factors to think about when determining the sales commission rate:
- The sales commission rate should align with business goals. For example, is the company trying to increase market share? If so, it may offer salespeople a higher commission rate to incentivize them to sell more.
- The commission rate should reflect the level of responsibility and the difficulty of the sales role. The sales process typically has three broad phases: access, persuade, and fulfill/follow up. Performance measures support these phases or primary objectives, but having more than 4-6 metrics to measure rep performance and determine compensation will serve you poorly. Furthermore, the role objectives may shift with changing marketing strategies to focus on different products, customers, or activities over time — it’s important to clarify which primary objectives are likely to remain relatively constant and which are likely to be temporary. Then, design your plan around the primary goals and either ensure that the salary is sufficient to ensure compliance with non-incentive generating activities or incentivize short-term campaigns with short-term incentives.
Negotiating B2B sales commission rates
Commission rates are not set in stone and may be negotiated between the company and the sales rep. In some cases, a sales rep may be able to negotiate a higher commission rate if they:
- Have a proven track record of making large sales
- Sell a particularly high-value or complicated product or service
- Follow a shorter sales cycle, as it requires more effort and resources to close the sale
While employers may allow room for individual negotiation, it's best practice to set clear pay philosophies and practices — then communicate them and stick to them. Perceptions of unfairness and favoritism can become a slippery slope that leads to unwanted turnover.
Clear communication will benefit everyone in the long run!
What’s the commission rate for other common B2B sales roles?
B2B transactions come in many shapes and sizes, as do the commission rates offered on these deals.
Depending on the role and responsibilities of the salesperson involved, B2B commission rates can vary significantly. For example, independent sales reps generally have higher commission rates on average than their traditional counterparts due to the unique flexibility and independence they offer.
Unlike a traditional sales rep who works for a company, an independent sales rep can take on different roles with different companies and often create their own strategies that best suit clients' particular needs.
What’s the commission rate for independent sales reps?
Independent sales reps are usually contractors who work on a straight commission (or “commission only”) pay structure. This group of sales reps tends to be more senior and very knowledgeable in their specific industry or sector.
The pros of this model include:
- Job flexibility
- (Sometimes) unlimited upside
- Independent work
- Generally, know precisely where you stand with your overall compensation
- Income fluctuation! Some months are better than others.
- Often working alone (and remotely), but this can also be a positive for some.
There are also a few ways to compensate an independent sales rep — gross margin is a typical structure. If you compensate reps as a percentage of gross margin, the average B2b sales commission range of 20-40% is typical.
If the method is straight commission on sales (not “less expenses”), that number can be in the 5-12% range “depending on the types of products and services, the experience of a particular sales rep, and other factors” (source).
According to the folks at ZenBusiness, independent sales reps “typically [earn] 5 to 15 percent of net sales. However, in some businesses, independent representatives are paid on a ledger basis” — earn a commission on every sale made in their territory, regardless of direct communication.
Somewhat related are commissions for sales reps working in B2B sector manufacturing. While commission rates will vary depending on their industry, geographical region, and prior performance, commission is typically based on a percentage of each sale they broker through different client deals.
What’s the commission rate for manufacturing sales reps?
Manufacturer sales commission rates can be framed differently than SaaS or technology.
In the case of technology, the cost of goods may be higher than those of manufacturing. Therefore, if a sales rep can successfully sell more expensive, complex items with more significant margins, they could receive higher commissions.
In many cases, manufacturers' rep commission rate is based on the number of products sold or the product value. Generally speaking, manufacturing companies offer commission rates ranging from 3-15% of the total gross sales revenue the sales rep brings in.
For example, say you are a sales rep working for a manufacturer of office chairs. Your compensation plan may be set up as follows:
- $5 per chair for the first 100 chairs sold
- An additional $1 per chair for all chairs sold after the first 100
Or, if the commission is based on the value of the products sold, it could look like this:
- $5 per chair for the first 100 low-end chairs sold; $7 per chair for the first 100 high-end chairs sold
- An extra $1 per chair for all low-end chairs sold after the first 100; an additional $2 per chair for all high-end chairs sold after the first 100
Depending on the company and the specific sales role, some sales organizations might offer a flat fee for each sale made (as in the example above) or a combination of a base salary and commission.
A company that manufactures luxury goods may offer higher commission rates to incentivize reps to sell more products, as these products may be more challenging to sell due to the premium nature of the goods. However, it is also likely that these reps will be required to reach higher quotas, making earning those commissions more challenging but all the sweeter when achieved.
What’s the right commission structure for you?
It’s essential to have an effective commission structure to get the performance you need from your sales team. So, while there are general ranges that you can follow, the best commission rate is often dependent on various factors, such as sale size or the product or service sold.
When implementing a new commission structure in your business, it’s crucial to have a well-informed decision-making process. With CaptivateIQ taking into account how changes in commission structures affect rep behavior, teams can gain valuable insight allowing them to draft terms that benefit everyone involved.
With CaptivateIQ, we’re able to better understand — What motivates our sales reps and how do customers’ purchase behavior change based on our own commissions structure? How does a change in commissions structure impact sales rep behavior and ultimately sales? What happens if we change how territories are assigned? What happens if we use a different quota multiplier? CaptivateIQ gave us insight into how we could achieve our revenue goals through effective commissions planning. — Connor Follet, Revenue Operations Analyst, Truckstop.com
Want to learn more about commission structures? Head over to our Blog to get best practices and more!
Note: This content is for informational purposes only and should not be construed as financial, accounting, tax, legal, or compliance advice or guidance. Please consult a professional adviser for guidance on your specific situation.