The Commission Plan Builder
Eleven decisions sit behind every sales commission plan. Answer a question or two on each, and the page picks the option that fits.
How it works
These are my personal views. They come from running dozens of sales teams and building dozens of incentive schemes.
Some worked wildly well and built a sales force so motivated it ran by itself. Others were disasters, and I made plenty of mistakes along the way.
The options come from the main books on sales compensation, listed at the end.
Each section below is one decision, with the full range of options. Answer the questions, and the page marks the option that fits in red.
The answers start with an example: an outbound B2B software team of 3 to 8 sellers. Change any of them to make the plan yours.
Commission size
How big is the commission on top of salary?
Salary follows the market for the role. What you decide is the commission on top, as a percentage of salary, that a rep earns at 100% of quota.
My ruleAt 20 to 25% of salary, the team stays soft and relaxed. At 80 to 100% of salary, reps go the extra mile.
Answer the questions above to get a recommendation.
Mistakes to avoid
- Raising salary to fix a motivation problem. A higher salary buys retention, not effort.
- Promising 80 to 100% without checking payback. If the business can't afford success, the plan gets cut the first time reps hit quota.
What to watch for
- With a big commission, the plan runs the team. Reps do exactly what pays, so every unpaid task needs an owner.
- A big commission on a thin pipeline creates frustration, not effort. Check pipeline coverage before you blame the reps.
Upside
What can a top performer earn?
What the top 10% of reps earn, as a multiple of the target incentive. The standard term is leverage.
Each sketch plots payout (vertical) against quota attainment (horizontal, 0 to 180%). The dotted vertical line marks 100% of quota.
Answer the questions above to get a recommendation.
Mistakes to avoid
- Advertising a 3x upside nobody can reach. It becomes a joke in the team.
- High upside on territories that differ a lot. The best territory wins, not the best rep.
What to watch for
- Sandbagging (holding back deals) when reps know next year's quota is built from this year's result.
- Resentment when one lucky deal produces a huge payout. Explain why it was paid.
Acquisition vs account management
Who acquires new customers, and who manages existing ones?
Whether separate roles handle new business and existing customers, and what each role is paid on.
My ruleUpsell belongs to the AM. Time is limited, so an AE who upsells isn't acquiring.
Answer the questions above to get a recommendation.
Mistakes to avoid
- Letting AEs keep accounts "just for now" with no end date. Twelve months becomes forever.
- Paying AEs on upsell. They farm their own customers instead of hunting.
What to watch for
- AEs closing customers who look good at signature and churn later, because they won't own them. Track early churn by the AE who closed the deal.
- AEs delaying the handover to keep an easy upsell for themselves.
Results, quality or activity
Pay for results only, or also for quality or activity?
What decides each role's payout, apart from the result itself.
My ruleAcquisition: results only. Account management: results plus quality and ethics.
Answer the questions above to get a recommendation.
Mistakes to avoid
- Paying AEs on activity. Calls and meetings go up, revenue doesn't.
- Paying AMs on results only. They push upsells the customer doesn't need.
What to watch for
- SDRs booking meetings that shouldn't happen. Pay only on meetings the AE accepts as qualified.
- Quality scores set by feel turn into favouritism. Base them on facts: complaints, churn, refunds.
Number of KPIs
Which KPIs does the plan reward, and how many?
The KPIs the team must push, weighed against the cost of complexity.
My ruleTwo measures with a balancing mechanism. One breaks later, three is already complex, four is impossible.
Answer the questions above to get a recommendation.
The balancing mechanism should adjust the payout up or down, not block it. Typical pairs are new revenue with discount level or early churn, and upsell with customer health.
Mistakes to avoid
- Adding a measure every time leadership has a new priority. The plan becomes a wish list nobody steers by.
- Letting the balancing mechanism block all pay. If its threshold is set wrong, one bad number zeroes the month.
What to watch for
- Reps optimise the measure, not the goal behind it. Without a balancing mechanism, they buy volume with discounts or bad customers.
- Reps asking finance what they earned. If they can't calculate their own pay, simplify.
Individual or team
Pay on individual or team results?
Whose result each person's incentive depends on.
My ruleA team target is no target. Use one only in an extremely bad situation.
Answer the questions above to get a recommendation.
Mistakes to avoid
- Using a team target because crediting deals is hard. A team target is no target.
- Agreeing split credit after the deal closes. Agree it before, in writing.
What to watch for
- Free riders in any team target. The best rep carries the team, then leaves.
- Strictly individual pay can make reps stop helping each other. Reward help through culture and an occasional team gift, not through the target.
When a sale counts
When does a sale count for pay?
The event that turns a deal into credited revenue, and what happens when a deal cancels.
Answer the questions above to get a recommendation.
Mistakes to avoid
- Paying at signature with no clawback in a business where deals cancel.
- Leaving "signed" or "live" undefined. Every vague definition is a future dispute.
What to watch for
- Deals signed on the last day of the month with side letters, free months or unusual terms.
- Customers pushed to sign before they're ready, then cancelling inside the clawback window.
Threshold by lead source
Where does payout start, and how high is the commission rate?
Both depend on how much business arrives without the rep's effort. Outbound, inbound and renewals each get a different answer.
My ruleOutbound acquisition pays the most. Inbound acquisition pays well. Renewals pay conservatively.
Each sketch plots payout (vertical) against quota attainment (horizontal, 0 to 180%). The dotted vertical line marks 100% of quota.
Answer the questions above to get a recommendation.
Mistakes to avoid
- Paying outbound and inbound deals at the same rate. Inbound looks like free money, so reps cherry-pick it.
- Paying renewals like new business. You pay big money for revenue that would have come anyway.
What to watch for
- Inbound leads relabelled as outbound to get the higher rate. Lock the lead source in the CRM before the first call.
- AMs just under the renewal threshold letting borderline renewals slip into the next period.
Cap
Capped or uncapped?
Whether payout stops, slows down or keeps rising at high quota attainment.
My ruleUncapped usually beats capped.
Each sketch plots payout (vertical) against quota attainment (horizontal, 0 to 180%). The dotted vertical line marks 100% of quota.
Answer the questions above to get a recommendation.
Research on one Fortune 500 sales force found that overachievement commissions kept the best reps selling after they hit quota (Chung, Steenburgh and Sudhir 2014).
Mistakes to avoid
- Capping to protect the budget, then wondering why stars stop selling in the second half.
- No windfall rule in a business with occasional huge deals. The first one becomes a crisis.
What to watch for
- Reps near a cap holding deals for the next period.
- Windfall reviews that always cut. If the committee never pays in full, the plan is capped in practice.
Pay frequency
How often is commission measured and paid?
The period over which results are measured and commission is paid.
My ruleThe shorter the better, whatever the sales cycle, because the pipeline should cover it. Quarterly is hard to motivate. At six or twelve months, it isn't a sales commission.
Answer the questions above to get a recommendation.
The same research found that quarterly bonuses kept weaker reps on pace through the year (Chung, Steenburgh and Sudhir 2014).
Mistakes to avoid
- Quarterly or annual pay because monthly is inconvenient for finance.
- Paying late or with errors. A late commission undoes the point of paying monthly.
What to watch for
- Reps below quota booking this month's wins into next month to maximise the payout there. The head of sales may choose to ignore it, but should know it's happening and why.
- End-of-month discounts to pull deals in. Track discount levels by day of the month.
Commission or quota bonus
Commission, quota bonus, or both?
Whether pay is tied to each deal, to the quota, or to both.
My ruleCommission on every deal, plus bonuses for hitting quota.
Answer the questions above to get a recommendation.
Mistakes to avoid
- Quota bonuses on guesswork quotas. They pay on a number nobody trusts.
- Too many milestones. The plan turns into a staircase nobody can read.
What to watch for
- Reps just under a milestone holding deals to cross it next period.
- Commission with no quota at all. Reps settle at a comfortable income.
Your plan
| Decision | Recommendation |
|---|---|
| 01Commission size | Open |
| 02Upside | Open |
| 03Acquisition vs account management | Open |
| 04Results, quality or activity | Open |
| 05Number of KPIs | Open |
| 06Individual or team | Open |
| 07When a sale counts | Open |
| 08Threshold by lead source | Open |
| 09Cap | Open |
| 10Pay frequency | Open |
| 11Commission or quota bonus | Open |
Running the scheme
A good incentive scheme changes how the team behaves. That's the point, and it means the team will find every gap in the rules.
You need to know what's happening and why. That takes a monthly check and a feedback loop with the reps.
| Signal | What it can mean | What to do |
|---|---|---|
| Deals closed in the first days vs the last days of the month | Wins moved between periods to maximise payout | Decide whether to accept it. If not, change the period or the threshold, not the rep. |
| Discount level by day of the month | Volume bought with price near the period end | Add or tighten the balancing mechanism. |
| Cancellations and refunds within 90 days | Customers pushed to sign too early | Apply the clawback and review those deals with the rep who closed them. |
| Share of periods in which reps hit quota | Quotas too hard or too soft | Set quotas that reps hit about 7 periods in 10. |
| Who leaves | Top performers leave because of the pay or the culture | Ask them why, and compare their pay with the market. |
- Ask the reps how they play the plan. They'll tell you, as long as the answer isn't punished.
- Tune the plan once a year, and rebuild it every two to three years. During the year, change it only for events you listed in advance.
- Never cut a commission after it's earned. Fix the rule for the next period instead.
- The plan buys behaviour, not judgment. Keep a manager close enough to the deals to see what the numbers hide.
Notes & sources
Where my rules differ from the books, my rules win. Before you launch a plan, replay it on last year's deals, rep by rep.
- Andris A. Zoltners, Prabhakant Sinha and Sally E. Lorimer. The Complete Guide to Sales Force Incentive Compensation: How to Design and Implement Plans That Work. AMACOM, 2006. The structure behind most of the decisions.
- David J. Cichelli. Compensating the Sales Force, 3rd edition. McGraw-Hill, 2017. Formula types, leverage and crediting.
- Mark Donnolo. What Your CEO Needs to Know About Sales Compensation. AMACOM, 2013. Caps, thresholds and metric pitfalls.
- Doug J. Chung, Thomas Steenburgh and K. Sudhir. Do Bonuses Enhance Sales Productivity? A Dynamic Structural Analysis of Bonus-Based Compensation Plans. Marketing Science, 33(2), 165-187, 2014. Field data on overachievement commissions and pay periods.
- Thomas Steenburgh and Michael Ahearne. Motivating Salespeople: What Really Works. Harvard Business Review, July to August 2012. Summary from Darden. Different levers for laggards, core performers and stars.