The right sales commission structure can significantly impact your team's performance and your organization's bottom line. With various options available, determining the best approach requires careful consideration of several factors like your industry, product, and budget.

There’s no one-size-fits-all answer, but there are frameworks every company can build off of for a compensation plan that hits all the right points. We’ve put together templates for three common plan types that cover a variety of needs: 

• ‍Attainment bonus plan: Incentivize and reward sales team members based on their achievement of predefined sales targets/goals.‍
• Commission % rate plan (account executive plan): Designed to reward sales performance and incentivize achieving overall sales targets.‍
• Multi-KPI performance plan: Reward sales team members based on the achievement of specific key performance indicators.

Each of the incentive structures provided in our plans is tailored to fit the needs of companies in specific growth stages. When you download our templates, you can easily implement a plan that keeps your sales going strong.

Not sure which one to use? No problem. Read on to learn more about building the perfect compensation plan for your sales team.

Download our free sales compensation plan templates now!

What is a Sales Compensation Plan?

A sales compensation plan outlines how your company incentivizes sales reps’ performance. A typical compensation plan covers base pay and variable pay (commissions, bonuses, and other rewards your company offers based on reps’ sales metrics). It may also include employee benefits and other indirect compensation (non-monetary offerings). 

Your sales compensation plan should list its objectives and employee eligibility, then lay out which metrics your company tracks and (if applicable) how they’re measured. Then, it should detail what sales reps stand to earn by meeting and exceeding their targets.

Why Compensation Plans Matter for Your Sales Team

An effective sales compensation strategy is built around a deeper philosophy that includes company objectives and hiring and retention goals. It’s also crafted with a focus on your expectations of each sales rep at your company. 

Here are the three major factors you should consider when building a fair compensation plan.

Fair Pay Structures and Retaining Top Talent

Employees, especially those in demanding jobs like sales, don’t just work for the love of the game. They work because they have their own financial goals, and it’s in their best interest to find a job that pays them what they’re worth.

Companies with effective compensation plans understand they need to offer a competitive advantage to win over top-tier employees. Sales reps should be able to earn as much (or more) at your company as they could working with your competitors — otherwise, why would they accept the job? They should also have the opportunity for raises and advancement as they grow in their role.

There’s no “right” base wage or commission structure that applies to all sales jobs. What constitutes a fair pay structure will depend on the company’s location, industry, and job description. Conduct competitor research to see what other companies pay their reps before deciding on your compensation plan.

Aligning Sales Goals With Company Revenue Objectives

Sales compensation plans are built around incentivizing reps’ performance — and you want to make sure you’re incentivizing the right things. However, only 1 in 3 sales leaders align sales incentives and organizational goals. 

To figure out this part of your compensation plan, consider your company’s revenue objectives and income streams. Many companies offer a range of products or services but rely on purchases at a certain tier or price point to keep the lights on. 

Once you have a clear view of where the bulk of your income stems from, ask how your business goals translate to sales goals. Do you want your sales reps to focus on those slow-but-steady contracts? Would you like 80% of new sales to be your “best seller” and the remaining 20% to be stretches toward bigger contracts? Or perhaps you feel you have a solid base with your existing mid-tier customers, and your company’s next growth phase will be increasing your high-tier clients by 50% through new sales or upsells.

After completing this sales planning, you can build a compensation plan that aligns with the company’s overall sales strategy. That may mean offering a bigger commission on those bread-and-butter contracts or having a bonus for sales reps who meet a quota on one tier of your product or service. Our sales compensation plan templates give examples of different structures that you can modify to meet your needs.

Encouraging Behaviors That Drive Growth

Your compensation plan should also include incentives for other actions that drive growth. For instance, sales is often seen as an individualistic job by reps racing to meet quotas — but teams perform better when sellers work together. You may want to add perks for reps that share strategies, help others hone their approach, and step in when a coworker needs help. 

Incentives may also be useful to address sales-dependent events that happen after the deal closes. Churn is a concern for many companies, and it’s often caused by sales to the wrong customers. Increasing compensation for reps who sell a big percentage of clients that stay beyond their first contract term can nudge everyone toward sticking closer to your customer persona and taking the time to qualify leads.  

5 Factors That Go Into Designing the Ideal Compensation Plan for Your Business

Now that you know what your compensation plan’s goals are, it’s time to think about the elements you want to include. Evaluate where your company stands on each of the items below.

Company Growth Stage

Fast-growing startups have very different sales needs than established and mature companies. Your company’s growth stage will dictate what you need from your sales reps.

Startups looking for growth typically want to encourage aggressive sales, but also may need time to find their footing and hone their customer profile and sales strategies. After hitting their stride, the focus will likely be on building a scalable sales process.

SMBs with an established customer base may be looking to expand into new markets or industries. These companies will want to supercharge reps’ efficiency with a replicable process that includes automation so sellers can spend more time personalizing their approach to meet the needs of each prospect. 

Enterprise companies with a mature sales program and income streams likely have a bigger focus on retaining and upselling existing customers, and taking steps that support long-term sustainability. With solid processes and automation in place, these companies will support reps in replicating previous results and increasing sales efficiency.  

Along with having different needs, companies in the earlier growth stages may also have fewer resources to put toward sales than more established companies. Your sales compensation plan needs to account for your main goals and what you can put toward meeting them. 

Quota and Revenue Goals

We already talked about the need to align your sales goals with reps’ behavior. Your quota and revenue goals are the indicators of what your company expects from each rep.

Sales quota planning is a must to set the initial targets and determine where your incentives will kick in. However, it’s equally important to monitor your team’s quota attainment over time. Compensation plans only provide an incentive when the targets they lay out feel achievable. If most of your team members consistently fail to meet their targets, you may need to adjust your quota planning and compensation plan, so reps feel motivated to strive for commissions and bonuses. 

Sales Cycle Length

The length of your sales cycle affects how often your reps are likely to earn commissions and other performance-linked bonuses. Companies with short sales cycles often have simple commission structures that provide ongoing incentives and rewards throughout the year.

Companies with longer sales cycles, like those that sell big products or primarily service enterprise clients, may need a different incentive structure to keep reps motivated throughout the entire sales cycle. It’s hard to put in nine months of work chasing a single commission, and even worse, when all that hard work comes to nothing. In this situation, a compensation plan that offers incentives for progressing clients down the pipeline may be a better choice. Yes, it means your company will be paying reps for deals that ultimately don’t close. But sometimes, that compromise is necessary for the sake of morale. 

Profit Margins and Pay Ratios

Your sales compensation plan needs to incentivize performance while protecting your company’s profitability. This often means doing some math to make sure commissions aren’t taking too much out of your profit margins. 

There are two big numbers to know here. The first is your profit margin: How much of your revenue (the total amount of money you bring in) becomes profit (net earnings for the company)? Revenue has to cover all of your expenses: employees in every department, cost of goods sold (COGS), overhead, and more. 

The second big number is your sales salary to revenue ratio: the percentage of sales income that’s being paid out to salespeople. This is fairly easy to calculate; just divide your total sales compensation by total sales revenue over a certain period of time. 

Obviously, since your sales revenue has to cover the entire company’s operations, the ratio of revenue that goes to sales reps’ pay has to be far below 1. Therefore, your incentives can’t scale too much. Our sales commission calculator can help you figure out your OTE (on-target earnings) for any compensation structure so you can create a pay ratio that works for your budget. 

Competitor Benchmarking

Finally, look at what your competitors are offering so you can put together a compensation plan that attracts high-quality reps to your company. Surfing job descriptions might help, but the best evidence is first-party salary data if you can get it.

Building a competitive plan doesn’t mean offering an identical structure. A good baseline is whether a high-performing sales rep can earn as much (or more) total compensation with your company as they could elsewhere.

Your plan might have a lower base salary but higher commission rates. You might offer progressively higher commissions to reps as they surpass larger quotas. Or maybe your company can afford to offer a higher base salary, which means reps have more stable take-home pay levels. Whatever your competitive advantage, make sure you can explain the math, so reps know how they can thrive at your company. 

3 (Free) Compensation Plan Templates

Now, you have everything you need to put together an official sales compensation plan. We’ve provided three free templates to help you document everything and share it with your reps. 

Each template is preceded by an explanation of what it includes and what types of companies it works well for. Simply find the one that’s the best match for your circumstances and customize the details to your needs.

Attainment Bonus Plan

An attainment bonus plan is a straightforward revenue-based commission schedule that involves accelerators for over-performers but does not weigh incentives toward specific products or contract types. 

This plan works well for companies with a short to mid-length sales cycle. It also works well if all sales are relatively equal (meaning your company doesn’t greatly prefer one type of customer agreement). It incentivizes all sellers to meet their quotas and then scales up earnings for those who achieve up to 200% of their target. 

Our attainment bonus plan template includes:

• Plan objective
• List of major performance metrics
• Bonus structure pay curve graph
• Example of commission earned
• Payment schedule

Download our template now to get started.

Commission % Rate Plan (Account Executive Plan)

Our commission percentage rate plan, also known as the account executive plan, is a tiered commission plan that offers an additional flat-rate commission on specific products or services. 

This plan works well for companies with a short to mid-length sales cycle. It’s also your best bet if not all sales are equal. Companies that offer specific products or services with a higher profit margin or that are otherwise more important to company growth should choose this type of plan. 

Our commission % rate plan template includes:

• Plan objective
• Commission structure overview
• Table of commission rate tiers
• Table of flat commission rates for specific products/services 
• Example of commission earned
• Payment schedule
• Performance tracking guidelines 
• Commission-by-tier payout graph

Download our template now to get started.

Multi-KPI Performance Plan

Our multi-KPI performance plan provides a commission-based incentive that pays out at different rates for each of four KPIs. 

This plan works well for companies with a long sales cycle or those that wish to incentivize other aspects of sales reps’ performance. It can be used by companies with relatively equal sales and a desire to incentivize certain behaviors, not just quotas. It can also be used to emphasize progress toward deals of a particular type. Companies can choose the four KPIs that indicate the actions they want to see. Your KPIs may relate to different stages of the sales pipeline (like signing a prospect up for a demo or sending a proposal) if you have a long sales cycle. If you’re looking to incentivize certain behaviors, you may instead link payments to other performance metrics (like number of meetings booked or a customer retention rate above a certain percentage). 

Our multi-KPI performance plan template includes:

• Plan objective
• Definition of key performance indicators and the commission connected to each
• Incremental payout structure overview
• Payment schedule

Download our template now to get started.

CaptivateIQ: The Only Incentive Compensation Management Solution You Need

Now that you have your sales compensation plan set, it’s time to put it into action. There’s no better way to do that than with CaptivateIQ. 

Our platform doesn’t just automate commissions. It offers your reps a live dashboard that allows them to see their progress toward incentives and motivates them to reach their next target. It’s flexible, so it works with any compensation structure and plan. And whether you’re a growing startup or an enterprise business, you never have to choose between speed and scale. Plus, CaptivateIQ offers real-time data analysis and calculations so you can constantly improve your sales plan and performance. 

See how CaptivateIQ can boost your sales performance and compensation plan administration by trying a free demo. 

Compensation Plan Frequently Asked Questions (FAQs)

How Do I Know Which Compensation Plan Is Right For My Team?

The best compensation plan for your team aligns rep behavior with company revenue objectives, provides competitive pay for your industry, and offers regular incentives even if your company has a longer sales cycle. 

What’s The Difference Between Commissions, Bonuses, And Accelerators?

A commission is a variable payment based on a rep’s performance. It’s typically calculated as a percentage of revenue brought in.

A bonus is a fixed reward for achieving a specific goal or meeting a certain quota.

An accelerator is an additional incentive that kicks in once a sales rep surpasses a specific tier or quota. It’s typically structured as a higher commission percentage on revenue or deals that exceed a set target. 

How Often Should I Review And Adjust My Sales Compensation Plan?

It’s smart to review your sales compensation plan at least annually to make sure it’s still competitive and functioning as intended. With a tool like CaptivateIQ, you can continually monitor your plan and project the impact of adjustments before making them. 

How Do I Structure A Compensation Plan That Balances Motivation And Profitability?

The amount your company can afford to spend on sales compensation is a fixed number, so you’ll have to think about how to structure your incentives to best motivate your sellers. That may mean offering regular bonuses as reps work up to their targets or quotas or adding incentives that kick in as reps move someone down a long sales funnel. 

Motivation is partly about presentation, as well. CaptivateIQ hosts leaderboards, gives your reps visibility into their performance and earned incentives thus far, and allows them to project earnings with our “what-if” calculator. 

What Tools Can Help Automate Compensation Management And Reduce Errors?

A commission automation tool like CaptivateIQ takes all the busywork out of managing commissions and makes sure your payments go out on time and are always accurate.