Explore The Multiplier, our new thought leadership hub.
Learn more
Intro text here,
With custom blockquotes, I can add a bunch of optional fields. There's the intro text, and all sorts of information about the author. The coolest part is that any element is optional!
Author N.
Head of Placeholders
Massa tincidunt dui ut ornare. Habitasse platea dictumst vestibulum rhoncus est pellentesque elit ullamcorper dignissim

Named a Strong Performer in “The Forrester Wave™: Sales Performance Management Platforms, Q1 2023”

Tour the Product
Explore our new thought leadership hub and subscribe for updates on our upcoming launch
Learn more

Uncapped Commissions: Benefits, Drawbacks, and Alternatives

Table of Contents

Sellers play an important role in your organization's revenue and overall success. So, it’s essential that they feel motivated and rewarded for their work. One of the best ways to address this is by implementing an effective commission structure.  

Different organizations have varying offers for their commission structure, such as variable commission, on-target earnings (OTE), and uncapped commissions (AKA unlimited commissions).

With uncapped commissions, there’s no limit to how much sales teams can earn. While this might sound like the ultimate sales commission structure, there are several factors you want to keep in mind. For example, uncapped commission can be is an effective way to keep salespeople engaged, but it’s not always feasible with a tight budget.

To understand further whether uncapped is the right sales commission structure for your sales team, here’s our complete guide to uncapped commissions, including:

  • What is uncapped commission?
  • How do uncapped commissions work for sales roles?
  • What are the upsides and downsides of uncapped commissions?
  • What alternative approaches should we consider?

Let's get started with the meaning of uncapped commission.

What Is Uncapped Commission? 

What does uncapped commission mean?

An uncapped commission structure means sellers earn a commission no matter how much they sell. This is different from a capped commission structure, where commissions are limited once salespeople have hit a certain sales quota.

With an uncapped sales commission structure, there’s no upper ceiling to the amount of commissions possible in a specific time period. This means the sky’s the limit for your salespeople and their earning potential. 

Many uncapped commission structures use a flat rate across all sales. However, you could also use an uncapped tiered commission rate, which pays representatives a higher commission rate for higher sales. This provides even more incentive for your sales team to perform to the best of their ability. 

How To Calculate Uncapped Commissions

Calculating your uncapped commissions will depend on the exact formula you are using. 

If you are using a flat commission rate based on sales volume, the calculation will look something like this: 

Total sales volume x Commission rate percentage = Commission amount

For example, if a sales rep made $10,000 in sales and had a 6% commission rate, they’d make $600 in commissions. 

The process gets a little more complicated when you’re using a tiered commission rate. Say you have a tiered commission scheme that looks like this: 

Up to $10,000 5%
$10,000 - $20,000 7%
$20,000+ 10%

If a seller made $25,000 in sales, their commission calculations would look like this:

(10,000 x .05) + (10,000 x .07) + (5,000 x .1) = $500 + $700 + $500 = $1,700

Benefits of Uncapped Commissions

Implementing an uncapped commission structure offers is a beneficial incentive pay structure for both your sales team and your company as a whole. I have reviewed the most significant benefits we should consider when determining whether to implement uncapped.

Here are some of the advantages of using an uncapped commission structure. 

Valuable Incentive for Sellers

Most salespeople are highly motivated by financial incentives. In fact, studies have found that salespeople prefer increased commission rates as a reward for good performance. Because an uncapped commission structure doesn’t limit potential earnings, it can be a very effective incentive for your sales team, especially when paired with an attractive base salary. 

This approach also encourages your team to use the most effective sales practices possible. Successful team members who generate real results for your company are always compensated accordingly, helping to keep your sales team motivated and engaged.

Uncapped commissions encourage newer members of your team to achieve their full potential. This approach also helps prevent experienced salespeople from getting complacent, as there’s always the potential to earn more.

Sales Team Feels Supported and Valued

An uncapped commission structure shows your sales team that they’re valued for every single transaction they make. When your sales team feels supported, they contribute to a healthy company environment. 

Improves Employee Retention Rates

Employee turnover is a major challenge for any organization. Replacing successful sales representatives takes time. Filling an open B2B sales role takes over 60 days, on average. It’s also very expensive — on average, replacing an employee costs 0.5 to 2 times as much as their yearly salary, and you’ll also miss out on sales when your team is down one representative. 

An effective compensation structure helps prevent successful employees from leaving. Uncapped compensation is a huge motivator for many salespeople, so implementing it is one of the best ways to keep your most successful team members on board. Having long-term sales professionals on board is a huge boon for your company. They are highly familiar with the product and can lead the way when working with newer sales reps. 

Can Increase Company Revenue

Implementing an uncapped commission structure can actually help increase your company’s overall revenue. This is because uncapped commissions tend to generate an excellent return on investment. Although your organization will be paying more in commissions, you’ll also be making more sales. Research has found that companies can increase their revenue by as much as 9% by removing commission caps. By paying uncapped commissions, you’re investing in your company’s long-term financial success. 

Drawbacks of Uncapped Commissions

Although there are many benefits to paying uncapped commissions, this structure isn’t realistic for every organization. There are some potential drawbacks to paying uncapped commissions — here’s what to keep in mind. 

Requires Consistent Cash Flow

An uncapped commission structure requires your organization to have a consistent budget and reliable cash flow. Because of this, an uncapped approach isn’t always feasible for small or rapidly growing organizations. 

In theory, your organization should always have the money to pay commissions, as they’re linked directly to successful sales. However, this isn’t always true in practice. In most cases, your organization won’t get paid right when your representatives make a sale. It takes time to process paperwork and finalize payment, which can affect your cash flow. 

Additionally, you might have time-sensitive financial obligations to investors or third-party vendors. If you aren’t able to keep cash flow consistent, it’s probably not the right time to implement an uncapped commission structure. 

Potential to Overpromise and Underdeliver

Another potential downside of uncapped commissions is that they can be difficult for companies to maintain during tough economic times. There are many events outside of your control that could change your organization’s finances, such as a recession, a natural disaster, or a major disruption to your industry.

If your organization’s financial status changes unexpectedly, this could leave you unable to pay the uncapped commissions you’ve promised to your sales team. Failing to pay commissions will result in a serious loss of trust with your team. This can damage your company culture at large and leave salespeople feeling frustrated and unmotivated. To implement an uncapped commission strategy successfully, your organization will need a financial strategy that can weather any unexpected financial challenges. 

Perceived Fairness Concerns

Within any commission structure, there will be some salespeople who earn more than others as a result of their success. However, these earnings gaps can feel more drastic when commissions are uncapped. This could create the perception of unfair compensation among salespeople who are not exceeding expectations and cause tension in the workplace. Ongoing communication is essential to prevent these conflicts from escalating. 

Difficulty Managing Expectations

With an uncapped commission structure, it’s easy for new salespeople to overestimate the amount of money they could make, rather than what’s realistic. This could lead to disappointment when earnings don’t line up with initial expectations. To avoid this, your company will need to be very clear about what average earnings look like for new salespeople, rather than focusing on what your high earners make. 

Could Incentivize Poor Sales Practices

Ideally, an uncapped commission structure will incentivize positive, effective sales practices. However, in some cases, the opposite effect happens. In an effort to close sales as quickly as possible and maximize commissions, some salespeople could use less-than-ideal methods. 

This might result in short-term sales, but if your team doesn’t qualify leads properly, you might struggle to retain customers. In rare cases, uncapped commissions could encourage your team to use unethical practices to boost sales. To prevent this from happening, you’ll need to provide ongoing training, structure, and support for your sales team. 

Alternatives to Uncapped Commissions

Uncapped commission structures are an effective way to attract high-quality salespeople to your organization. However, if uncapped commissions aren’t financially feasible for your organization, there are many alternative commission structures to consider. 

One option is to implement commission caps for each quarter or sales period. For example, your sales team could receive a 15% commission on their total sales up to $10,000. For this strategy to work, your commission caps should be significantly higher than your individual sales quotas. This way, your best salespeople are still compensated for going above and beyond. 

Another option is to pair a capped commission plan with a competitive base salary. This guarantees that your employees receive some guaranteed compensation for their work, regardless of their performance. This approach can make it easier to implement a commission structure on a fixed budget. It’s also great for new sales teams, as they won’t be penalized for slow sales months while they’re still learning.

Try CaptivateIQ's sales commissions calculator to compute commissions figures, and learn formulas for various types of sales commissions structures.

Use CaptivateIQ To Manage Commissions With Ease 

Uncapped commissions are a powerful motivational tool for your salespeople and can drive revenue growth for your entire organization. However, before implementing any new commission structure, it’s important to carefully review your budget and your financial projections to make sure it’s the right choice for you. 

CaptivateIQ automates commission calculations while providing transparency and insights for your team, regardless of which commission structure you use. Schedule a demo today to see how CaptivateIQ can benefit your organization. 

Make commissions 10x better with CaptivateIQ

Talk to our in-house experts to learn how you can make commissions a strategic growth driver.

Image Desciprtion