How to Create a Sales Compensation Plan: Models, Templates & Best Practices

I recently spoke with a sales leader who successfully scaled his team from 5 to 30 reps and grew revenue from $1.2M to $10M over two years. But despite these impressive gains, the past year was a struggle, they barely added $2M in revenue. 

Reps were missing their targets, morale was low, and despite everyone working harder than ever, performance was stagnant. But, nothing changed, so what was the problem? The answer was simple - nothing changed. Including their sales compensation plans.

The reps were still chasing small deals to hit quick wins, while others ignored long-term renewals altogether. And the biggest issue? No one had clarity on how they were being compensated. 

Some reps were chasing small deals to hit quick wins. Others ignored renewals altogether. The result? Revenue inconsistency and rising team frustration.

If you've ever faced a similar situation, you're not alone. A sales compensation plan can either be your biggest growth lever or a hidden roadblock. And too often, companies fall into the trap of building plans that are either too complex, too generic, or too disconnected from business goals.

In this blog, I’ll break down what makes a great sales compensation plan, from understanding the different types of compensation plans to implementing best practices and avoiding common pitfalls with actionable insights to refine your sales strategy and maximize revenue growth.

What is a Sales Compensation Plan?

A sales compensation plan is a structured strategy that outlines how sales professionals are rewarded for their performance. It defines pay components such as base salary, commission, bonuses, and incentives to align sales efforts with company revenue goals. 

A well-designed plan motivates sales teams, improves retention, and boosts revenue by incentivizing performance. Common models include straight salary, salary plus commission, commission-only, and tiered incentives. 

Businesses adjust compensation structures based on industry trends, sales quotas, and profitability to ensure fairness, scalability, and transparency.

Key Components of a Sales Compensation Plan

1. Base Salary – The fixed portion of a sales rep’s income that provides financial stability regardless of performance.

2. Commission – Variable pay tied directly to sales outcomes, typically calculated as a percentage of revenue or profit.

3. Bonuses – One-time payouts for achieving specific milestones, like exceeding quota or maintaining high client retention.

4. Quota & Targets – Defined sales benchmarks reps are expected to meet within a set timeframe, often monthly or quarterly.

5. Sales Accelerators – Higher commission rates are activated when reps surpass their quota, encouraging overperformance.

6. Sales Decelerators – Lower commission rates are triggered after a certain sales threshold, used to manage margins or discourage excessive discounting.

7. SPIFs (Sales Performance Incentive Funds) – Short-term, campaign-based bonuses designed to promote specific product lines or behaviors.

8. Draw Against Commission – An advance payment on future earnings, often given to new hires as they ramp up.

9. Clawbacks – A policy requiring reps to return earned commissions if a deal falls through within a defined period.

10. Territory & Account Assignments – Designated markets, regions, or client segments that define a rep’s focus and earning opportunity.

11. Cap & Floor on Earnings – Controls placed on the maximum or minimum compensation a rep can earn, ensuring budget discipline and income security.

Why Sales Compensation Plans Matter? 

Sales compensation plans do more than just define how reps get paid. They shape sales behavior, influence team culture, and directly impact the company’s bottom line. When designed thoughtfully, they can solve major organizational problems, from underperformance to high turnover.

Key Benefits of a Well-Structured Compensation Plan

1. Drives Sales Performance 

A well-designed compensation plan serves as a direct motivator. It creates a clear link between effort and reward, giving reps tangible goals to strive for. This clarity increases accountability and energizes reps to push harder to hit targets. 

For example, tiered commission structures often lead to over-performance because reps are incentivized to exceed quota, not just meet it. 

2. Enhances Employee Retention 

When reps know how their compensation is calculated and believe it is fair, they’re more likely to stay. High attrition is often tied to opaque or inconsistent pay structures. Retention improves when plans offer earnings predictability, achievable goals, and growth potential. 

This is especially crucial for fast-scaling sales teams where replacing reps can cost months of productivity and onboarding expense.

3. Boosts Revenue Growth 

Compensation plans that align with business goals, like closing high-margin deals or increasing customer lifetime value, can significantly accelerate revenue. 

If reps are incentivized to pursue short-term wins that don’t support profitability, it undermines long-term growth. Gross-margin-based or profit-based comp models help balance top-line and bottom-line outcomes, ensuring sustainable performance.

4. Attracts Top Talent 

In a competitive hiring market, top-performing salespeople are drawn to organizations with transparent, lucrative compensation models. Clear documentation, achievable quotas, and performance accelerators make roles more attractive. 

Companies that tailor compensation to specific roles, like offering residual commissions for account managers or performance bonuses for enterprise sellers, stand out in the eyes of high-caliber candidates.

A structured sales compensation plan is not a luxury, it’s a strategic tool that, when built around data and clarity, fuels performance, loyalty, and growth.

Types of Sales Compensation Plans

A strong sales compensation plan is built on several core components. These elements determine how sales reps are incentivized and directly impact motivation, performance, and overall business growth. 

Understanding these components ensures that your compensation plan is both competitive and aligned with business objectives.

1. Base Salary + Commission Plan

What it is: A fixed base salary supplemented with performance-based commissions.

Best for: Standard sales roles requiring relationship-building, consistent effort, and accountability across the sales cycle.

This is the most widely used model for a good reason. It provides financial security through a guaranteed paycheck while still motivating performance through incentives. A well-balanced base and commission split allow reps to focus on quality selling, not just volume or short-term wins.

For 2025, the average salary structure increase is projected at 2.5%, lagging the 3.8% average budget for individual increases.

Pros:

• Creates a financial safety net that supports rep morale during slow periods
• Encourages consistent activity across the pipeline without desperation selling
• Makes hiring easier, especially for less risk-tolerant or mid-level reps

Cons:

• If commissions are too low or thresholds are poorly set, performance can stagnate
• Without regular review, the base-to-variable mix can drift away from business goals

Example: A B2B SaaS company pays AEs a base salary for ongoing sales activities like discovery calls and demos. On top of that, reps earn commissions only when a new account is signed and successfully activated, aligning the reward with the results. a base salary for activities like prospecting and demos, while earning commission only when deals are closed and customers are onboarded successfully.

2. Straight Commission Plan

What it is: Reps earn exclusively through commissions with no base salary.

Best for: Roles where reps operate independently, manage their own pipeline, and are comfortable with income variability.

On average, organizations are budgeting 6%-7% of payroll for broad-based variable pay in 2025, with much higher targets of 30%+ for executives.

This model is a high-risk, high-reward approach to sales compensation. It’s best suited for industries where sales cycles are short, the rep already has a strong network, or the company needs to minimize fixed costs. Reps in straight commission roles are typically seasoned, self-motivated, and highly entrepreneurial.

Pros:

• Offers unlimited earning potential for high-performing reps
• Low overhead for companies with limited budgets or transactional sales models

Cons:

• Inconsistent earnings can lead to stress and turnover
• Lacks team alignment and collaboration unless carefully managed

Example: An independent insurance agent earns a commission on every policy sold. Since there’s no base salary, their monthly income can fluctuate significantly based on market conditions and individual performance. Their commissions are based on the value and type of policies they close. Their income varies based on performance and client renewals.

3. Profit-Based Compensation Plan

What it is: Commission tied to the actual profit margin of a deal, not the top-line revenue.

Best for: Businesses where product costs vary widely or profitability is a core KPI.

This plan shifts the rep's focus from deal volume to deal quality. Instead of chasing large but low-margin sales, reps are encouraged to negotiate pricing that protects profit margins or push for higher-margin products and services. It's commonly used in industries like consulting, IT services, and manufacturing, where cost structures vary significantly from deal to deal.

Pros:

• Encourages smart deal-making that contributes to the bottom line
• Discourages discount-heavy deals that erode margin

Cons:

• Requires transparency into deal-level profitability, which not all companies are equipped to track
• May complicate sales forecasting

Example: In a B2B consulting firm, reps are compensated only on deals that exceed a 35 percent profit threshold, motivating them to prioritize value-based pricing and avoid undercutting to close deals.

4. Tiered Commission Structure

What it is: Commission rates increase once sales reps exceed certain performance thresholds.

Best for: Environments focused on overperformance, such as teams with aggressive revenue targets or competitive compensation strategies.

This model is designed to push reps beyond just hitting quota. The more they sell, the more they earn per deal, which creates a strong incentive to maximize output. It's particularly effective in enterprise and high-ticket sales where reps might slow down after reaching their target unless they’re motivated to keep pushing.

Pros:

• Reinforces high performance and motivates reps to push past quota
• Helps retain top performers by rewarding sustained output

Cons:

• Can be difficult to budget if multiple reps overachieve simultaneously
• May widen pay disparity across the team

Example: A software sales rep earns 4 percent commission up to $1600 in quarterly revenue and 6 percent on any revenue beyond that. This motivates the rep to keep closing even after the quota is met.

5. Revenue-Based Compensation

What it is: Commission is calculated as a flat percentage of the total deal value, regardless of margin or costs.

Best for: Fast-paced sales environments focused on top-line revenue growth, such as transactional SaaS or product-led sales.

This model simplifies compensation by focusing purely on revenue booked, making it easy for reps to calculate their earnings and understand their goals. It works well for lower-margin products where the goal is market share or user growth rather than maximizing profit per sale.

Pros:

• Simple to implement and easy for reps to understand
• Aligns effort with revenue generation

Cons:

• May ignore product profitability or implementation complexity
• Could incentivize selling low-margin deals

Example: In a subscription-based sales team, reps earn 6 percent commission on every contract signed, regardless of client size or location. The flat structure allows reps to focus on closing velocity.

6. Draw Against Commission

What it is: A temporary advance paid to reps that is later offset by their earned commissions.

Best for: New hires or reps entering a new territory where deals take time to close.

This model provides a financial cushion during the ramp-up period, helping new reps build confidence and pipeline without the pressure of immediate closings. It’s particularly valuable in industries with long sales cycles or onboarding processes.

Pros:

• Helps smooth income for reps during ramp-up
• Reduces financial stress early in the sales cycle

Cons:

• Can cause confusion if not tracked and reconciled properly
• Reps may feel “in debt” if their commissions don’t catch up quickly

Example: A new field sales rep receives a $1,204.82 monthly draw for their first quarter. This advance is deducted from their earned commissions once they begin closing deals, providing financial stability during pipeline development.

7. Gross Margin Compensation

What it is: Commissions are based on the gross profit of a deal (revenue minus the cost of goods sold).

Best for: Businesses with bundled offerings, custom pricing, or fluctuating delivery costs.

This model shifts the incentive from volume to profitability. Reps are encouraged to sell products or services with healthier margins, upsell where possible, and avoid unnecessary discounts. It requires a mature finance system to track deal-level margin accurately.

Pros:

• Prioritizes healthy deal margins over sheer volume
• Encourages reps to sell value, not just discounts

Cons:

• Requires visibility into COGS per deal
• Not always well understood by reps unfamiliar with margin-based metrics

Example: An enterprise rep sells two different IT packages. One is priced at $12,050 with a 50 percent margin, and the other at $18,072 with a 10 percent margin. Despite the higher revenue on the second deal, they earn more from the first, promoting more strategic sales behavior.

8. Territory Volume Commission

What it is: Commissions tied to overall sales volume within a defined geographic or market-based territory.

Best for: Field sales teams, regional managers, or reps who work collaboratively within shared accounts.

This model rewards reps based on how well a territory performs overall, which is ideal when multiple reps are contributing to large or complex deals. It promotes teamwork and minimizes conflicts over account ownership.

Pros:

• Encourages teamwork and strategic territory planning
• Aligns incentives for broad market development

Cons:

• Harder to attribute results to individual performance
• Potential for disputes over deal ownership within a shared region

Example: A national account manager receives a quarterly bonus when their assigned region surpasses $600,000 in revenue. The threshold is typically based on territory size, historical performance, or forecasted potential. This structure rewards collective success, regardless of which individual team members closed the deals, and encourages regional collaboration.

9. Residual Commission

What it is: Residual commissions are paid on deals previously closed, often for the duration of the customer relationship.

Best for: Subscription-based models or businesses that rely on recurring revenue.

This model promotes retention-driven selling. Reps benefit not only from closing the initial deal but also from nurturing the account. It’s especially useful in SaaS, media, and telecom, where long-term customer engagement is key to profitability.

Pros:

• Promotes long-term client relationship management
• Incentivizes low churn and proactive account nurturing

Cons:

• Income takes longer to ramp
• Can lead to inflated long-term payouts without expiration rules

Example: A subscription sales rep continues to earn 5 percent of monthly recurring revenue for up to 18 months after the initial sale, as long as the customer stays active.

10. Hybrid Sales Compensation Model

What it is: A blend of fixed and variable compensation models tailored to complex sales roles.

Best for: Companies with long sales cycles, varied product offerings, or roles spanning both hunting and farming.

This approach combines different plan types to match a rep’s diverse responsibilities. For example, a hybrid model might include base pay, new business commissions, bonuses for account expansion, and residuals on renewals.

Pros:

• Adapts to diverse selling motions across the funnel
• Balances stability with performance incentives

Cons:

• Difficult to manage across large teams
• Requires frequent review to ensure alignment

Example: A strategic account executive earns a base salary, a commission for new client acquisition, a quarterly bonus for upselling existing accounts, and monthly residuals on retained contracts for the first year.

Each model serves a different sales strategy. Choosing the right one starts with understanding your reps, your product, and your growth goals, then aligning incentives to drive the right behavior.

How to Structure a Sales Compensation Plan (Step-by-Step Guide)

Designing a sales compensation plan is about more than setting a percentage or choosing a pay structure. It requires connecting business strategy, performance goals, and sustainable financial outcomes. Here's a practical, six-step process to create one that drives real impact.

Step 1- Define Business and Sales Goals

Every effective sales compensation plan begins with a clear understanding of business objectives. Are you aiming to grow revenue, improve customer retention, reduce churn, or increase average deal size? Compensation must directly support these priorities.

If the company wants to break into a new market segment, for example, the plan could include higher commissions for new logo acquisition or performance bonuses tied to strategic account wins.

Step 2- Identify Key Performance Metrics (KPIs)

Once goals are clear, define the metrics that will track progress. These might include:

• Quota attainment
• Annual Contract Value (ACV)
• Customer Lifetime Value (LTV)
• Win rates, sales cycle duration, or retention

Suppose the focus is on increasing LTV. In that case, it makes sense to tie part of a rep’s earnings to renewal rates or upsell activity. That way, the comp plan promotes quality deals that drive long-term revenue.

Step 3- Choose the Right Compensation Model

The model you choose should match the sales motion and team maturity:

• Straight commission or flat-rate incentives work for transactional, high-volume sales
• Base salary plus commission suits consultative, long-cycle sales
• Draw against commission helps ease onboarding in new regions or product lines

If a business is launching a high-consideration product with a long sales cycle, combining salary, tiered commission, and SPIFs can help balance rep motivation across prospecting and closing.

Step 4- Set Commission Rates and Incentives

Next, define how many reps can earn and under what conditions. The key is to make payouts competitive while keeping them aligned with margins and growth targets.

For example, if a rep’s base salary is $15,000, setting commission structures to target an additional $10,000–$12,000 in achievable earnings keeps the total compensation realistic. You might also layer in accelerators for surpassing quota or bonuses for upsells.

Step 5- Align Compensation with Company Profitability

Your plan should drive both revenue and profitability. This requires stress-testing the structure against real-world selling behavior. Are reps rewarded equally for discounted deals and high-margin sales?

Suppose a rep closes two deals worth $17,000 each. One has a 45 percent margin, the other just 15 percent due to heavy discounting. If the payout is the same, the plan might be rewarding margin erosion. Shifting to a margin-based or gross profit-based model helps prevent that.

Step 6- Monitor and Optimize Regularly

The job isn’t done once the plan is launched. Compensation should be reviewed regularly to ensure it’s working as intended. Track:

• Quota attainment vs. cost of sales
• Commission-to-revenue ratios
• Retention and turnover rates
• Rep feedback

For instance, if reps consistently hit quota but upsell activity is low, that could signal a gap in the incentive structure. Adjusting the plan to reward multi-product deals or customer expansion can realign efforts with revenue goals.

A good compensation plan aligns financial rewards with the outcomes that matter most. By starting with a strategy, selecting the right model, and making room for data-driven adjustments, you’ll build a plan that motivates performance and supports long-term growth.

Sales Compensation Plan Examples & Templates

1. Account Executive 

Account Executives are responsible for converting pipelines into revenue. Their compensation plans typically follow a 50:50 base-to-variable structure, with a strong focus on quota attainment and overperformance.

Typical structure:

• Commissions based on closed-won revenue or bookings
• Tiered commission rates that increase after hitting 100% of quota
• Accelerators for multi-year contracts, strategic products, or large deal sizes
• Quarterly targets with multipliers for stretch goal achievement

Example: An AE might earn 6% commission on revenue up to $60,000 per quarter, 10% from $60,000–$108,000, and 15% beyond that. Additional bonuses may apply for closing three-year contracts or deals with multi-product adoption.

This approach not only drives quota attainment but incentivizes reps to prioritize high-value, strategic opportunities.

Check out this template →

2. Sales Development Representative 

SDRs play a critical role in building pipelines through lead qualification and outbound efforts. Their compensation plans are typically structured with a 70:30 or 60:40 base-to-variable split, where variable pay is tied to early-stage metrics like meetings booked and qualified leads generated.

Typical structure:

• Base salary covering fixed monthly pay
• Commission for each sales-qualified lead (SQL) or demo completed
• Bonuses for meetings that convert into opportunities
• Tiered incentives for exceeding monthly or quarterly SQL targets

Example: An SDR may earn $24 for every SQL generated, plus an additional $60 bonus if they cross 120% of their monthly quota. Some plans also tie incentives to closed-won deals originating from SDR-sourced leads to encourage quality over quantity.

This structure promotes high-quality lead generation and aligns the SDR’s work with pipeline and revenue growth.

Check out this template →

3. Customer Success Executive 

Customer Success Executives ensure long-term client value through renewals, upsells, and satisfaction. Their compensation typically includes a 70–80% base salary and a variable component tied to Net Revenue Retention (NRR), CSAT scores, and expansion metrics.

Typical structure:

• Bonuses linked to NRR performance (e.g., exceeding 110%)
• Incentives for high CSAT scores
• Payouts for achieving upsell or cross-sell targets

This structure drives a balance between customer experience and revenue growth. For example, an executive might have quarterly incentives for achieving 100% logo retention and annual bonuses tied to NRR exceeding 110%.

Check out this template →.

4. Presales Engineer 

Presales engineers play a crucial role in deal influence by owning technical validation in the sales process. Their compensation plan typically includes a base salary (accounting for 85–90% of total earnings) and a variable component tied to technical demo delivery, POC success rates, and alignment with AE performance.

Plans often include:

• Quarterly bonuses for delivering a target number of qualified demos
• Incentives based on the number of deals successfully supported through to closure
• Peer or AE feedback scores factored into performance payouts
• An additional revenue influence metric based on the deal pipeline the presales engineer has touched

This structure ensures that technical teams are aligned with revenue generation without the pressure of direct quotas, allowing them to focus on enablement quality.

Check out this template →

Common Pitfalls in Sales Compensation Plans and Their Solutions

The best sales compensation plans align financial rewards with the outcomes that matter most. By starting with a strategy, selecting the right model, and making room for data-driven adjustments, you’ll build a plan that motivates performance and supports long-term growth.

1. Overcomplicating the Compensation Structure

When sales compensation programs include too many variables, thresholds, exceptions, or unclear calculations, sales reps struggle to grasp how they’re being paid. This confusion often leads to inconsistent behavior, reduced trust in leadership, and lack of motivation. 

Reps might spend more time trying to understand the plan than focusing on selling, which undermines overall performance.

2. Misalignment with Company Goals

A frequent issue is when compensation plans reward behavior that doesn’t align with business priorities. 

For example, if the company aims to prioritize profit but the comp plan rewards top-line revenue, reps may push heavily discounted deals that hurt the margin. This disconnect can create tension between leadership and sales, leading to misaligned execution.

3. Lack of Clear Performance Metrics

Undefined or inconsistent performance metrics leave reps uncertain about how success is measured. Without clarity on what counts, whether it's revenue, margin, activity levels, or renewals- reps are left guessing. This often results in missed targets, poor morale, and a lack of accountability across the team.

4. Compensation Plans That Don’t Motivate Reps

Plans that offer minimal upside, cap earnings too soon, or fail to reward exceptional performance risk disengaging high performers. Only 28% of sales professionals believe their teams will hit 100% of their quota for the year. 

Reps who realize that extra effort won’t yield higher pay often stop pushing once they hit their quota. Over time, this lowers revenue potential and increases attrition among your best talent. 

5. Ignoring Pay Transparency

When reps don’t understand how their compensation is calculated or where they stand against targets, it breeds frustration and skepticism. Lack of transparency can damage morale, decrease trust in leadership, and result in lower engagement.

6. Not Reviewing the Plan Regularly

Compensation strategies that remain static despite market or internal changes quickly become outdated. Sales motions evolve, products change, customer expectations shift, and if the comp plan doesn’t keep up, it becomes ineffective. Teams may start gaming the system or focusing on outdated KPIs, undermining business results.

Best Practices for Structuring Sales Compensation Plans

1. Align Compensation with Business Objectives

Every incentive should serve a larger goal. Whether it's increasing market share, improving profitability, or growing customer retention, your compensation plan should support it directly. Misalignment here leads to wasted effort and suboptimal performance.

For instance, if your business is targeting a shift from transactional sales to enterprise accounts, your plan should reward deal quality and account expansion, not just volume.

2. Maintain Simplicity and Transparency

Good sales compensation packages should be easy to understand and calculate. If sales reps can’t figure out how much they’re earning or what they need to do to reach the next incentive tier, motivation drops.

Keep components minimal, use straightforward language, and offer access to real-time commission data through dashboards or CRM tools. The simpler the plan, the more effectively it drives behavior.

3. Incorporate Accelerators and Decelerators

Accelerators help push top performers beyond their targets by increasing commission rates after quota attainment. Decelerators, on the other hand, can help control costs or disincentivize unprofitable sales behavior.

Suppose a rep hits 100 percent of the quota early in the quarter. An accelerator that increases their commission from 5 percent to 7 percent for every deal beyond quota keeps them motivated. Conversely, offering a lower commission on highly discounted deals discourages margin erosion.

4. Balance Short-Term and Long-Term Incentives

Short-term incentives like SPIFs drive urgency, while long-term rewards like retention bonuses or residual commissions encourage reps to stick around and nurture customer relationships.

If retaining top performers is a challenge, consider offering a bonus that pays out annually based on client retention or multi-year contract renewals. This adds a layer of loyalty to the compensation structure.

5. Regularly Review and Adjust Plans

No sales compensation strategy should be static. Market dynamics, company strategy, and sales behavior all change, and your plan must adapt accordingly.

Review the plan every quarter or at least twice a year. Use a combination of sales performance data, profitability metrics, and rep feedback to identify what’s working and what isn’t. Small tweaks, like updating accelerators or realigning KPIs, can have a large impact on performance.

Conclusion

A well-designed sales compensation plan model is more than just numbers on a spreadsheet. It’s a strategic engine that fuels motivation, aligns sales behavior with business outcomes, and creates a culture of performance and accountability. The best plans are simple to understand yet powerful enough to adapt to changing goals, markets, and team dynamics.

But designing and managing these plans can be complex without the right infrastructure. Manual spreadsheets, unclear rules, and delayed payouts not only frustrate reps but also cost you performance.

Everstage helps sales teams and revenue leaders build smarter, more transparent compensation plans. With real-time dashboards, automated commission tracking, and flexible modeling, you get complete control over payouts without the operational burden. Reps always know where they stand, finance gets visibility into comp ROI, and leadership can make faster, more confident decisions.

Try Everstage today for better visibility, faster payouts, and compensation plans that scale with your growth.

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