How to Design a Sales Commission Plan That Works

A sales commission plan that works does three things at once: it pays reps fairly for the results you actually need, it is simple enough that every rep can calculate their own paycheck, and it keeps the company profitable at every level of performance. In practice, that means setting a clear on-target earnings (OTE) figure, splitting it between base salary and variable pay, tying the variable part to one or two metrics that drive revenue, and protecting the plan with sensible rules for accelerators, clawbacks and ramp periods.

Most commission plans fail because they try to do too much. Founders want reps to close new logos, upsell existing accounts, push a new product, keep discounts low, and update the CRM, all from one plan. Reps respond by optimizing for whatever pays best and ignoring the rest. I have seen this pattern repeatedly while building outbound teams. The fix is almost always to simplify. Below is the framework I use, with concrete numbers you can adapt to your own team.

What is a commission plan actually for?

Before you touch a spreadsheet, write down in one sentence what you want the plan to change. For example:

• "We want AEs to close more new annual contracts, not monthly ones."
• "We want SDRs to book meetings that actually show up and qualify."
• "We want account managers to grow existing customers by at least 15% per year."

A commission plan is a behavior-shaping tool. It is not a reward ceremony and it is not a retention bonus. If you cannot name the behavior you want, the plan will reward whatever happens by accident.

A good test: if a rep follows the plan perfectly and maximizes their payout, would you be happy? If the answer is "only if they also do X, Y and Z," those things need to be in the plan or in the job description, not left to hope.

What should the base-to-variable split be?

The pay mix is the ratio of fixed salary to variable pay at target. It should reflect how much influence the rep has over the outcome. The more a rep controls the result, the more variable the pay can be.

Common starting points in B2B:

• SDRs / BDRs (booking meetings): 70/30 or 65/35. They control activity and meeting quality, but not the close.
• Account Executives (new business): 50/50 or 60/40. They own the deal from discovery to signature.
• Account Managers / Customer Success with expansion targets: 70/30 or 80/20. Much of their work is retention and service, which is harder to attribute.
• Sales managers: 60/40 or 70/30, usually paid on team attainment.

If your sales cycle is long (six months or more) or your deals are large and infrequent, lean toward a higher base. A rep who closes two deals a year at a 50/50 split will have wildly unpredictable income and will likely leave before the second deal lands.

If your product is transactional with short cycles, you can afford a more aggressive split, because reps see the results of their work quickly.

How much should a rep earn at target?

On-target earnings (OTE) is what a rep earns in a year if they hit exactly 100% of quota. Set it based on the local market for the role and seniority, not on what you wish you could pay.

Here is a simple sanity check I use: a rep's quota should typically be somewhere between 4x and 6x their OTE for new-business AEs in SaaS-like models. If you pay an AE $60,000 OTE, a quota in the range of $240,000 to $360,000 in new annual contract value is a reasonable starting zone. Below 4x, the role is often unprofitable. Above 6x, you are likely setting a quota most reps will miss, which destroys trust in the plan.

This ratio varies by industry, margin and deal type, so treat it as a starting conversation, not a law. If you are hiring in Turkey and want a fuller picture of salary, taxes and hidden costs, I broke that down in what a sales rep really costs in Turkey.

How do you calculate the commission rate?

Once you know OTE, the split and the quota, the commission rate falls out of simple math.

Example: a new-business AE

• OTE: $60,000
• Split: 60/40
• Base salary: $36,000
• Variable at target: $24,000
• Annual quota: $320,000 in new annual contract value

Commission rate = variable at target ÷ quota = $24,000 ÷ $320,000 = 7.5%

So for every $10,000 deal the rep closes, they earn $750 in commission. At exactly 100% attainment, they earn their full $60,000 OTE.

Example: an SDR paid on meetings

• OTE: $30,000
• Split: 70/30
• Base salary: $21,000
• Variable at target: $9,000
• Target: 15 qualified meetings held per month, 180 per year

Payout per qualified meeting = $9,000 ÷ 180 = $50

Notice the word "held." Paying SDRs on meetings booked invites no-shows and weak calendar invites. Paying on meetings held and accepted by the AE aligns the SDR with the AE. Some teams add a bonus per meeting that converts into a real opportunity, for example $50 per held meeting plus $100 when it becomes a qualified opportunity.

The quota itself is the hardest number to get right. If you are not sure how to set it, my guide on setting realistic sales quotas for your team walks through the bottom-up and top-down methods.

Which metric should you pay commission on?

Pick one primary metric, two at most. Every additional metric dilutes focus.

Common options and when they fit:

• Bookings (signed contract value): Simple and motivating. Best when collections are reliable and churn is low.
• Cash collected: Protects you from deals that never pay. Useful in markets where late payment is common, but reps may feel they are being punished for finance's problems.
• Annual contract value (ACV) vs. total contract value (TCV): Paying on ACV keeps things comparable. Paying on full TCV for multi-year deals can create huge one-time payouts that distort the plan. A common compromise: pay full rate on year one, a reduced rate (for example 50%) on year two, and nothing beyond.
• Gross margin: Useful when reps control pricing and discounting directly, such as in services or distribution businesses.
• New logos vs. expansion: If you want both, use different rates. For example, 10% on new logos and 5% on expansion, because expansion is usually easier.

One rule I hold firmly: never pay on anything the rep cannot see in the CRM in real time. If reps have to wait for finance to tell them what they earned, they stop trusting the plan.

Should you use accelerators, decelerators and caps?

Accelerators

Accelerators increase the commission rate once a rep exceeds quota. They reward your top performers and keep them pushing in the last weeks of a quarter instead of sandbagging deals into the next period.

A typical structure:

• 0–100% of quota: base rate (7.5% in our AE example)
• 100–150% of quota: 1.5x the base rate (11.25%)
• Above 150%: 2x the base rate (15%)

Run the numbers before you commit. If a rep hits 200% of a $320,000 quota, they bring in $640,000 in bookings. Their commission would be $24,000 (first $320k) + $18,000 (next $160k at 11.25%) + $24,000 (last $160k at 15%) = $66,000 in variable pay. Make sure your margins can handle that comfortably. Usually they can, because overperformance means revenue you did not plan to have.

Decelerators

Some plans pay a lower rate below a threshold, for example half the rate below 50% of quota. This discourages coasting, but it can feel punitive. I use decelerators sparingly and only after quotas have proven fair over several quarters.

Caps

Caps limit total commission. My advice: do not cap commission for new-business reps. Caps tell your best people to stop selling once they hit the ceiling, which is the opposite of what you want. If you are worried about windfall deals, handle them with a clear "large deal" clause rather than a hard cap, for example: "Deals above $150,000 ACV will be reviewed, and commission may be adjusted to the standard rate without accelerators." Write it down in advance and apply it consistently.

When should commission be paid, and what about clawbacks?

Timing matters more than most founders think. The closer the payout is to the result, the stronger the motivation.

• Monthly payouts work best for SDRs and transactional sales.
• Monthly or quarterly payouts work for AEs, depending on deal volume.
• Annual payouts are too far away to change daily behavior for most sales roles.

Clawbacks protect you when a customer cancels or never pays. A common, fair approach:

• If the customer churns or fails to pay within the first 90 days, the commission is clawed back from future payouts.
• After 90 days, the commission is earned regardless.

Keep the clawback window short and clear. A 12-month clawback makes reps feel responsible for things outside their control, like onboarding quality or product issues.

How should commission work during ramp-up?

A new rep cannot carry a full quota in month one. If you apply the standard plan from day one, they earn almost nothing in variable pay for months and may leave before they become productive.

Two common fixes:

1. Ramped quotas: For example, 25% of quota in month one to two, 50% in month three to four, 75% in month five, 100% from month six onward. The commission rate stays the same, but the targets for accelerators and attainment scale with the ramp.
2. Guaranteed or "non-recoverable draw" commission: Pay a fixed portion of variable pay (for example 50%) for the first two or three months regardless of results, then switch to the full plan.

The right ramp length depends on your sales cycle. I wrote a separate piece on how long it takes a new sales rep to ramp up that can help you set realistic timelines.

How do you handle commission in Turkey?

If you are building a team in Turkey, a few local realities shape the plan:

• Currency and inflation: If your revenue is in USD or EUR but salaries are in TRY, decide upfront which currency the commission is calculated in. Many export-focused companies calculate commission on foreign-currency revenue and convert at the exchange rate on the payout date. Whatever you choose, document it, because exchange rates can move significantly within a single quarter.
• Gross vs. net: Reps in Turkey often think in net monthly salary. Commission paid through payroll is subject to income tax and social security deductions, so show reps a realistic net estimate alongside the gross figure. Work with your accountant on the exact treatment.
• Review frequency: In high-inflation periods, base salaries may be adjusted more than once per year. Revisit OTE and quotas when you adjust base pay so the split does not drift.

What are the most common commission plan mistakes?

• Too many metrics: Five components at 20% each means none of them matter.
• Changing the plan mid-quarter: Even if the change is good, it destroys trust. Make changes at the start of a period with at least two weeks' notice.
• Paying on bookings that finance cannot verify: Leads to disputes and resentment.
• Setting quotas from the revenue target alone: "We need $2M, we have five reps, so $400k each" ignores pipeline, ramp and territory quality.
• Not modeling the extremes: Always model payouts at 50%, 100%, 150% and 200% attainment before launching.
• Writing the plan in legal language nobody reads: One page, with a worked example, is enough for most teams.

A step-by-step process to build your plan

1. Define the one behavior the plan should drive for each role.
2. Set OTE based on market rates for the role and location.
3. Choose the split based on how much the rep controls the outcome.
4. Set quota using pipeline data and historical conversion rates, then check the quota-to-OTE ratio.
5. Calculate the base commission rate (variable at target ÷ quota).
6. Add accelerators above 100%, and decide on large-deal rules.
7. Define timing, clawbacks and ramp rules.
8. Model scenarios at 50%, 100%, 150% and 200% attainment, and check the cost of sale at each level.
9. Write a one-page plan document with a worked example for that role.
10. Review quarterly using your pipeline and forecast data. Your weekly pipeline review will show you early whether the plan is driving the right behavior.

FAQ

What is a good commission rate for B2B sales?

There is no universal rate, because it depends on OTE, pay mix and quota. A useful approach is to divide the rep's variable pay at target by their annual quota. For new-business AEs, this often lands somewhere between 5% and 15% of contract value, but your own math matters more than any benchmark.

Should SDRs be paid commission on closed deals?

SDRs should be paid mainly on what they control, which is qualified meetings held and opportunities created. Some teams add a small bonus when a sourced deal closes, which builds alignment with AEs. Making closed revenue the main SDR metric usually frustrates them because the close depends on the AE and the sales cycle.

How often should you change a commission plan?

Review the plan every quarter, but change it at most once or twice a year unless something is clearly broken. Frequent changes signal that leadership does not know what it wants, and reps start to distrust the numbers. When you do change it, announce it before the new period starts and explain the reason.

Should commission be capped?

For new-business reps, generally no, because caps discourage your best performers from selling more. If you are concerned about rare windfall deals, define a large-deal review rule in advance instead. Caps can make sense in roles where payouts depend heavily on factors outside the rep's control.

Conclusion

A commission plan that works is not complicated. It starts with a clear behavior you want to drive, a fair OTE, a pay mix that matches how much control the rep has, and a quota grounded in real pipeline data. From there, accelerators reward your top people, short clawback windows protect the company, and ramp rules give new hires a fair start. Keep it to one page, model the extremes, and review it every quarter.

If you are designing a commission plan for your first sales hires or reworking one that is not delivering, I am happy to share what has worked for our teams. [Get in touch with me here](/) and let's talk it through.

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