Straight salary, commission-based, or profit-sharing approach: how you compensate sales reps directly affects your business's bottom line. Getting it right and adjusting your sales compensation plan is essential to keep your company moving forward.

How can you know which compensation plan works best for your business? We’ve broken down the differences, showing how eight common sales compensation plan examples contribute to your business’ revenue goals. 

What is a Sales Compensation Plan?

A sales compensation plan is a structured approach to paying sales reps. It outlines the methods and rates used to calculate pay, including base salary, sales commission, and bonuses. 

Sales managers use the plan to determine how each rep is paid based on performance, experience, and other metrics. Comp plans may include:

• Base salary: Fixed compensation paid to reps no matter how they perform. It can be an hourly wage but is often a monthly or annual salary.
• Sales commission: Variable compensation based on individual performance, typically a set amount for each sale or conversion. 
• Incentives: Rewards for particular activities, such as lead generation or customer satisfaction. They may include cash or non-cash rewards, including time off and gift cards.
• Bonuses: Additional payments (typically cash earnings) from achieving specific goals, including referring new clients or exceeding sales quotas. 
• SPIFFs: Short for Sales Performance Incentive Fund Formula, this type of sales comp features special, time-sensitive promotions that compensate reps for certain sales behaviors.

Sales leaders can also use sales accelerators (increased commissions for exceeding goals) or decelerators (reduced commissions for underperforming).

A mix of incentives, goals, and measurements forms the sales compensation plan. 

A Simple Sales Compensation Plan Example

Here's what a comp plan might look like:

• Base Salary: $45,000 per year.
• Commission: 8% of sales revenue.
• Annual Bonus: $10,000 for exceeding the annual sales target by 10%.
• SPIFF: $500 for every 20 units of a specific product sold within the summer months.

Sales compensation plans can change often. They can also vary by rep, department, and sales territory.

The Importance of a Well-Designed Sales Compensation Plan

The right compensation plan rewards your sales team while balancing the company’s needs. Benefits include:

• Alignment with the company’s goals: Based on business goals, decide what behaviors to reward and create the plan that’s most likely to promote change—for example, a higher commission rate for larger deals if the company goal is to increase average deal size.
• Boosting team morale and retention: Competitive sales compensation plans attract and retain top sales talent by providing clear financial incentives, recognition for exceptional performance, and tangible rewards. This creates a positive feedback loop celebrating and rewarding success, leading to increased job satisfaction and longer tenures.
• Ensure competitiveness in the marketplace: A strategic sales compensation plan maintains a competitive edge through industry-leading commission rates, bonuses, and accelerators, attracting and retaining top sales talent who consistently drive revenue growth.  

8 Sales Compensation Plan Examples

Sales managers can take many approaches to tailoring a plan to their reps and the organization. Below, we explore the most common comp plans, including when they work best and any potential drawbacks.

1. Straight Salary

A straight salary compensation plan is just what it sounds like: Reps get a regular salary per month or year that doesn’t change based on performance.

A salary-only plan example is a sales professional earning a $55,000 annual salary plus typical employee benefits. They don’t receive additional payment types like bonuses or commissions.

Advantages: 

• Reps can count on a regular salary and plan personal budgets.
• Managers spend less time tracking or managing payments.
• Sales professionals may feel that pay is more equitable and experience less team tension.

Drawbacks:

• It may be hard to motivate sales rep performance without additional perks.
• High turnover risk: A lack of bonuses could cause top talent to leave for higher-paying companies. 

Best for: Sales support staff and those in administrative roles who don’t have the opportunity to earn extra through commissions. 

2. Salary Plus Commission

A salary plus commission sales compensation plan combines a fixed base salary with additional variable compensation based on set goals, quotas, or other performance measurements. 

For example, a sales rep earns a $50,000 annual salary while being eligible for additional SPIFFs, conversion commissions, and referral bonuses for each new lead they acquire. 

Advantages: 

• Reps receive a guaranteed income while still getting extra pay for high performance.
• Easier to motivate and retain reps through bonuses, SPIFFs, and commissions, allowing for additional earnings based on sales performance.
• A balanced mix of compensation types gives sales managers flexibility in creating customized comp plans. 

Drawbacks:

• Sales commission plans can be complex to set up and manage compared to a straight salary plan.
• The variable components are hard for sales reps to plan around.
• Performance-based pay comes with additional concerns, such as an overly competitive work environment or unethical practices.

Best for: Sales reps who have direct control over their sales performance and need the stability of a salary with the motivation of bonus earnings.

3. Commission Only

In a commission-only structure, sales reps are paid based on total sales; there is no base salary. For example, a sales rep gets paid $100 for every software subscription they sell. 

Advantages:

• Because reps only get paid when they perform, straight commission plans can motivate top performers.
• Lower overhead in times of slow sales.
• Straight commission can attract ambitious sales talent who want ownership over their work.

Drawbacks:

• Straight commission plans may deter sales professionals who need income stability.
• High turnover rate, especially for reps who are slow starters.
• The focus is on the number of deals closed, not good customer service or the company’s mission. 

Best for: Startups that need to manage employee costs closely or businesses paying independent contractors, such as real estate agents or insurance reps. 

4. Profit-Sharing Plans

A profit-sharing sales compensation plan pays reps a standard salary and a portion of the total profit generated. It rewards employees for behaviors that improve organizational performance. 

For example, a company pays a sales rep $60,000 annually plus a portion of the 10% revenue share split among the sales team. 

Advantages:

• Promotes a sense of ownership where employees feel responsible for the organization's success.
• Attracts sales employees who want to feel part of something bigger and stick around to see it grow.
• Less toxic competition between sales employees as they share profits. 

Drawbacks:

• The initial lower pay may not attract sales representatives who require higher upfront earnings. 
• Compared to comp plans tied to individual performance, reps have less control over their earnings.
• Administration may be more complex and require additional planning. 

Best for: Employee-owned companies with a shared ownership culture and startups wanting to save on upfront costs.

5. Tiered Commission Structures

In a tiered commission structure, reps earn different rates for different performance levels. As they sell, they become eligible for higher commission rates, motivating them to close deals even after reaching quota. 

Example: A sales rep earns a base salary of $55,000 annually, plus a 10% commission on the first $500,000 in sales and a 15% commission on everything sold beyond that.

Advantages:

• Tiered commission structures can be motivating for the right sales rep.
• The plan fosters a culture of high performance and excellence.
• Scalable: companies only pay more when they generate more revenue.

Drawbacks:

• Tiers can be complex and challenging to manage.
• Higher commission tiers may promote unethical sales behavior, especially as reps get closer to the cut-off. 
• Reps who repeatedly get close to the next tier without achieving it can get discouraged.

Best for: Sales reps in competitive industries who are highly motivated, respond well to pressure and would be negatively affected by commission caps.

6. Territory Volume Incentive Compensation Plans

In a territory volume incentive plan, reps get paid based on the total sales for their assigned territory. Commission rates may be tiered, but you only count total volume, not individual conversions. 

For example, a sales rep earning a $55,000 base salary gets a 5% commission on total territory sales of up to $1 million per year and an 8% commission on sales over that.

Advantages:

• Drives more sales, focusing on upselling and cross-selling and existing customers.
• Territory volume incentive plans encourage territory growth and expansion into new markets.
• Offers a clear measurement of earnings with a less complex formula for calculating commissions. 

Drawbacks:

• This comp plan may be unfair for reps with smaller, less populated, or less affluent territories. 
• It may discourage reaching out to new or less profitable customers.
• Customer service for some accounts may suffer if the rep doesn’t feel there’s room for additional earnings. 

Best for: Sales reps like regional account managers or pharmaceutical reps who cover a large territory and follow longer sales cycles with multiple touchpoints.

7. Draw Against Commission

In a draw-against-commission compensation plan, the sales rep receives some of their anticipated commission in advance to have a paycheck while they go through the sales cycle. 

Example: A sales rep is expected to make $100,000 in sales in October (their minimum quota). In September, they receive a check for half of the 10% commission, providing $5000 in income before they’ve even earned it.

There are two types of draws. A recoverable draw requires the rep to return any overpayments by reducing future commissions until settled. A non-recoverable draw doesn’t require paying back any deficit and may be the more secure option for sales reps.

Advantages:

• Sales reps are guaranteed at least some income while they move a lead through the pipeline.
• In a recoverable draw scenario, reps may work even harder to reduce a deficit so they don’t have to pay it back.

Drawbacks:

• This plan is more complex to set up and manage, requiring careful tracking.
• Companies may need to ask for money back from sales reps, which can strain the relationship.
• Variable components can be difficult to plan around.

Best for: High-value sales reps and those in seasonal industries who will eventually make a lot on sale commissions but need some security during the sales cycle.

8. Equity-Based Compensation

Equity-based compensation gives reps shares of company stock as payment. It’s similar to the profit-sharing compensation plan in motivating sales employees to take ownership of the organization’s success.

For example, a sales rep earns a 5% sales commission plus a percentage of a share of company stock for every sale they make above quota. It normally comes with a vesting schedule, so reps earn upon reaching certain career milestones.

Advantages:

• Drives long-term growth instead of promoting quick sales wins.
• Compensation may attract reps with goals and values similar to the company's, creating a more harmonious corporate culture.
• Plans offer more flexibility for companies with limited cash flow.

Drawbacks:

• The more complex compensation mix can be challenging to calculate and manage over time, especially as the company grows.
• Stock dilution can threaten the value built up by reps and must be managed carefully.
• Reps risk having earnings tied to market performance and may never see their earnings come to fruition.

Best for: Startups and high-growth companies with limited liquidity who want to share their initial success with those who started on the ground floor.

How to Create a Sales Compensation Plan

Creating a sales compensation plan involves several steps, including defining objectives, setting goals, determining compensation structures, and using tools for tracking and management. 

Ready to make your sales team an offer they can’t refuse? Let’s break down the process: 

1. Define Objectives

Design your sales compensation plan to achieve your company's business goals, such as increased revenue or improved customer acquisition. Each compensation plan rewards different behaviors, making some more appropriate for specific goals.

A profit-sharing plan may work better for a startup experiencing sudden growth; a draw against commission could be the better choice for a seasonal industry where most sales occur within a few months.

When developing your compensation strategy, consider your organization’s growth stage, sales cycle, market position, and target customers to ensure it meets your long-term objectives. 

Example: Increase revenue by 20% and acquire 100 new customers within the next fiscal year.

2. Identify Metrics to Track Success

Next, choose the Key Performance Indicators (KPIs) and metrics you’ll use to define success. These could be tied to sales rep behavior or extended to other organizational metrics (such as customer service ratings). Make sure the metrics are something you can easily track for multiple reps.

Example: Each sales rep has a quarterly revenue target of $100,000 and a new customer target of 25.

3. Determine the Right Compensation Structure

Customize plans for each sales role based on responsibilities and objectives. Field reps focused on closing deals need performance-driven plans weighted toward commission. VPs overseeing strategy and sales manager compensation require plans emphasizing organizational goals and team success.

Choose plan structures that incentivize desired behaviors and outcomes. For example, commission-only compensation plans drive rapid customer acquisition. Balanced base pay plus commission promotes both growth and account management. Blend different components to create tailored plans that align with each position's targets and priorities.

4. Set Competitive Benchmarks

Establish quotas, commission rates, and pay scales based on thorough market analysis. Compare industry compensation data with internal rates to identify and address competitive gaps. When setting sales targets, consider factors like territory potential, market maturity, and role complexity.

If you haven't conducted a compensation analysis, it'll help you:

• Monitor industry trends and competitor pay structures to maintain competitiveness.
• Measure performance and pay across teams to ensure fairness.
• Evaluate how compensation spend impacts revenue, customer retention, and quota attainment.
• Use historical performance data to refine sales quotas and commission structures for optimal results.

5. Communicate and Roll Out the Plan

Get your sales team excited about their sales compensation package by walking them through how their sales efforts drive company success. Break down exactly what they need to hit and on-target earnings (OTE) — the total amount they can expect to earn if they meet sales targets or quotas.

Make sure everyone can easily reference their plan details whenever needed, and keep your door open for questions. Some reps might be new to certain compensation structures, so schedule a time to walk through examples and scenarios that bring the plan to life.

The key is ensuring your team feels confident about earning and growing with your company. When they understand the path to success, they'll be more motivated to crush their goals.

6. Use Tools to Automate and Measure Performance

Even with the simplest sales compensation plan, you’ll need to pay reps accurately and on time. More complex compensation plans, such as tiered payouts or profit-sharing, require even more attention to detail.

Compensation management software like CaptivateIQ simplifies payroll and performance measurement in both scenarios. It offers real-time monitoring of all your sales activities and connects with popular CRMs, performance tools, and payroll software.

This data-driven approach means you don’t have to wait until the end of the month to know who hit quota and who still needs to hit specific goals. You can easily adjust plans on the fly for individual reps or make sweeping changes as you go.

CaptivateIQ has condensed my workload to a manageable level. It’s freed up my time considerably to do other value-add tasks. I’m now able to make more informed decisions around commission payouts & manage commission spend better. — Katerina George, Head of Incentives and Controls at Fitch Solutions

It also automates payments to reps, lets everyone see what they’ve earned for the week, and helps sales teams track progress so they know how far they are from hitting quotas or that next payment tier. Instead of printing performance reports, you’ll get access to a dashboard that shows performance results for individuals and teams.

7. Regularly Review and Adjust 

Is your compensation strategy the right one? Only time will tell. Be prepared to monitor and update as your business scales, the sales team evolves, and the market shifts.

For example, if an industry recession makes sales quotas unrealistic, you may have to lower your expectations. Or, if a product fails to attract the right audience, your product-based SPIFF program may need a revamp. If top sales talent is consistently over-performing (and earning more than you can afford), it’s likely time to boost sales quotas or adjust tiers to meet your budget.

The only way to know that your sales compensation plan still works is to continually review the metrics and identify what is not meeting your overarching goals.

Review your plan quarterly after implementation, and be honest about what you see. You may not need to scrap your plan altogether — a slight adjustment may be all that’s necessary to get your performance back on track.

Get Compensation Right from the Start With CaptivateIQ

Ultimately, sales employees need the security of knowing that if they perform well, they’ll be rewarded. Companies often have the budget for competitive pay but don’t have the right compensation plan to motivate reps and make them feel valuable.

Assessing all of your available performance data will help you make better decisions. Schedule a demo with our team to learn more about how our platform reduces administrative burden and gives reps a transparent look at their performance.