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What is the Standard Commission Rate for Business-to-Business (B2B) Sales?
We get this question a lot.
The answer is that commission rates for B2B sales vary significantly based on your company's unique coverage model. This model determines how you structure direct, indirect, overlay, and channel sales resources to align with your target markets and specific product or service offerings. While there is no universal commission rate, understanding your coverage strategy can help you establish a competitive and effective compensation plan.
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!
What’s the Average Sales Commission Rate in the B2B Space?
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. They set the quota to be 4 to 5 times the annual OTE (on-target earnings of base, plus 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, etc.)
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 and Benchmarks 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.
Base Salary and Commission Split
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.
Quota-to-OTE Ratio
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.
Alignment With Business Goals
Often, without intention, a commission structure can conflict with overall business goals and work against the company’s mission. For example, if a company is trying to increase its market share, commissions need to be competitive enough to incentivize growth. If the aim is to increase profit margin, commissions should encourage sales of higher-margin products and services (not just the easiest sale).
It’s not always obvious when your current commissions work counter to larger goals, but if you see reps favoring territories, products, or leads so they can get the quick sale or higher commission, it could be a sign you’re rewarding the wrong behavior and need to adjust.
Level of Responsibility and the Difficulty of the Sales Role
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.
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 rep roles 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 creates their own strategies to 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
The cons?
- 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.
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 Commission Rate for Sales Reps Working in SaaS?
The short answer is that the standard commission rate for Software as a Service (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.
However, the exact rate can vary based on several factors, such as:
- Deal size and complexity
- Sales cycle length
- Company objectives
- Role-specific responsibilities
- Market conditions
Some enterprise-level SaaS solutions often have advanced features and capabilities that aren't immediately obvious. A knowledgeable sales rep can connect these features to tangible business value, making the product more appealing to potential customers. This specialized knowledge should be compensated in line with their experience so these reps could see the higher end of commissions at 20% or more.
How to Set Competitive B2B Commission Rates
Create a structure that attracts and keeps top talent while staying fair and motivating. Commission rates are key because they reward performance and can be adjusted to match company goals like boosting revenue or customer retention. Reps may negotiate commissions if they bring unique value, such as a strong track record or expertise in selling complex products. To handle these negotiations, be clear about your pay policies and transparent about how rates are decided to avoid any feelings of unfairness.
Use Benchmarks as a Baseline
Leverage benchmarks so you know you aren’t paying your reps too much or too little. Benchmarks back up the rationale for your compensation structure, and you can cite them when explaining how you created the plan. Reps will know that data informed their commissions, not your gut feeling or other arbitrary factors. This is important in creating trust between leaders and reps, as they know you value them and want to pay them fairly.
Start by researching the average rates in your industry, such as SaaS, manufacturing, or agriculture. Just don’t lump all the rep types together. Account executives, for example, should get higher rates than sales development reps and customer success managers.
Look at factors like geography and your company size. A startup in Nebraska might not offer the same commissions as an enterprise company on the Fortune 500 list in California, so benchmark accordingly.
Finally, look at what your competitors pay. While they may not be transparent about all the details of their commission plans, job listing sites like Glassdoor or Indeed offer at least some idea. (If you have a new employee willing to share what they’ve been offered during a job search, all the better!) Rely on industry reports, if available. They aggregate data for companies like yours, so you don’t have to rely on one or two examples that could be outliers.
Assess Team Performance Under the Current Structure
Look at current KPIs and sales performance metrics to get a better idea of how your team is doing (and if the commission rate you offer is moving them in the right direction).
Some of the top KPIs used to assess performance include:
- Revenue-based metrics: Total sales by team, month-over-month (MoM) and year-over-year (YoY) sales growth, and whether you reached sales target attainment
- Productivity metrics: Number of meetings booked, offers sent, or calls made
- Conversion metrics: Win rate, lead-to-sale percentage, and quote-to-close ratio
- Individual performance metrics: Sales per rep, retention rate by rep, and comp-ratio (how each employee’s salary compares to the midpoint of the market average)
- Team metrics: Customer satisfaction and average sales cycle length
Sales planning software with performance management features can help you track and visualize these KPIs automatically using real-time sales data. Use these metrics and what you learn in performance reviews to see how your teams are doing overall. If you’re not seeing the results you want, your compensation structure may be to blame, and some scenario testing may be needed to safely try a new approach.
A low closing rate is an example of a KPI that could signal a compensation structure issue. If the sales reps earned too low of a commission rate for early-stage pipeline activities, it might discourage putting high-quality leads first. They are then forced to sell to their less qualified leads instead. A compensation planning tool lets the sales leaders test out different alternative compensation plans to see which may eventually solve this issue.
Leverage Tools for Modeling and Scenario Planning
Modern sales planning tools not only help sales leaders implement their chosen commission structure but also help them anticipate the suitability of these commissions in the long term. The tools use past sales and performance data and AI modeling to see how different plans might play out in the real world.
Modeling features reduce surprises when planning for commission costs and help you see the impact commissions will have on your company’s bottom line and the sales team’s motivation. Use these tools to proactively find the best commission plans and test them with new sales data.
Avoid the Pitfalls of Underpaying or Overpaying
It can be hard to strike the right balance with your commissions, as too high of commissions may cause your organization financial burdens. On the other hand, paying too little won’t attract the right reps to your company.
More specifically, underpaying may lead to:
- Decreased sales team motivation
- Increased turnover of your top performers
- Exposure to legal and reputational risks
At a minimum, underpaying may cause your sales teams to lose their trust and confidence in your company, degrading the workplace culture.
Overpaying has risks, too, including:
- Financial strain on the company
- Promoting undesirable behaviors, including less effort or neglecting existing clients
- Overpayments (also known as “clawbacks”) and difficulty receiving the money back
To avoid these pitfalls, create clear commission structures and communicate them often. Let teams know how you developed the structures and your reasons for implementing them. Review your commissions at least annually to make sure they stay competitive with industry standards and don’t promote unwanted behaviors.
Automated commission tools simplify the tracking and adjusting of commission plans and make it easy for sales reps to see how commissions have been credited.
Offer Flexibility for Top-Performing Reps
Your top performers keep the revenue flowing and help your company meet financial goals. So, how do you reward them? One way is to keep commission structures flexible for them, so they can earn what they need to feel appreciated in a variety of scenarios. Flexible plans account for changes in the market, the businesses’ financial health, and the personal goals of the rep.
Ideas for flexible compensation include:
- Tiered commission, which adjusts based on volume
- Multiplier commission, with 1.5x or similar commissions as higher quotas are met
- Uncapped commission with no limits on earnings
- Performance-based adjustments that reward individual reps according to personalized goals
- Profit-based commissions tied to profit margins and not just revenue
Further customization could include non-cash incentives, such as trips, training opportunities, mentor programs, or fast-tracks to leadership roles. If it’s something a sales rep would really want, and it’s within legal bounds for your company, you might consider it as an incentive.
Incorporate Bonuses
Beyond standard commissions, bonuses help motivate teams and reward chosen behavior. Common bonus structures include:
- Performance-based bonuses for reaching 100% of quota, which increase in increments above it (110%, 120%, etc.)
- Tiered bonuses paid out at various levels of performance up to and over quota
- Specific goal bonuses for behaviors like booking ten new appointments, selling high-priority products, or entering new markets
- Accelerators that increase commission rate past certain thresholds, such as 1.5x commission after 120% of quota
Our recent research reveals that 17% of sales managers pay commissions for things like account renewals and only 25% pay for upsells, showing there’s lots of room to explore bonus structures beyond flat quota-based commissions.
You can also look at SPIFFs (Sales Performance Incentive Funds), which are limited-time offers for certain behaviors. Two examples include giving out $1,000 bonuses for each product sold from the new line or decreasing sales cycle times in the 4th quarter.
Bonuses don’t have to be cash-based. Paid time off (PTO), priority parking, or flex time can all be ways to motivate employees without increasing commissions.
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 insights 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 behaviors change based on our own commissions structure? How does a change in commission 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!
Average B2B Sales Commission Rate FAQs
How do I calculate the average B2B commission rate for my team?
One way to calculate commission is to decide the total annual compensation package you want to pay, then:
- Calculate the quota as 4-5 times the annual compensation package salary.
- Determine the base salary as 10% of the quota.
- Calculate potential commission as 10% of the quota.
Finally, make sure all the numbers add up to your desired on-target earnings (OTE): Base salary + potential commission = total annual compensation.
How do B2B commission rates vary by industry?
Each industry has its own standards for commission, with B2B manufacturing averaging 3-15% of the total gross sales revenue and SaaS averaging 10%. Rates can vary based on industry benchmarks, however, so research what businesses of your size pay to remain competitive.
Is it common for B2B sales reps to earn variable commissions?
Yes, it’s very common. Most companies, especially those in B2B SaaS, use a combination of base salary and variable commissions as part of the 10/10 model. Reps make 10% of the quota as base salary, with 10% of the quota as commission. This differs from fixed-rate commissions, where reps earn the same commission amount, no matter the sales or quota amount.
How can I ensure my commission structure stays competitive?
Do research to see what other companies in your industry pay. Then, use these benchmarks to assess your commission structure and make sure it’s generous enough to attract and retain talent. You can also network with professionals to see what companies of your size and growth stage are paying.
What tools can help automate B2B commission calculations?
Commission calculations can become very complicated. Use technology platforms like sales compensation planning tools to automate the calculations, ensuring there are no errors. They also save time spent on manually updating spreadsheets. CaptivateIQ is one such tool that updates commissions with each sale and doesn’t require managers to track them manually.
