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Back in November I wrote a guide to hiring your first salesperson — and I broke down a few options for paying your sales team.
Today let’s dive deeper, and cover some other compensation models I didn’t touch before!
Sales comp is all about the right incentive
More than any other role at your company, salespeople are driven by incentives.
Pay is obviously the biggest lever you have to pull. But you don’t want to pull it blindly. Take a look at the models I’ve laid out below. Which one best fits your business?
Common sales comp models
Base Salary + Commission (Capped)
Pros: Provides a stable income while offering motivation through commission-based incentives.
Cons: May discourage salespeople from putting in extra effort to pursue larger deals, limiting the business's overall growth potential.
Base Salary + Commission (Uncapped)
Pros: Strong motivation for salespeople to exceed targets, as their earning potential is directly tied to their performance.
Cons: Higher and potentially unpredictable costs for the business.
Straight Commission
Pros: Directly ties earnings to performance, motivating sales efforts.
Cons: Riskier for salespeople, especially during slow periods. Tends to encourage “hired gun” attitudes.
Tiered Commission
Structure: Commission rates increase as sales targets or revenue thresholds are met (like tax brackets)
Pros: Encourages continuous performance improvement and rewards higher achievement.
Cons: The initial stages may be challenging for salespeople.
Revenue and Profit Sharing
Structure: A percentage of the total business revenue or profits goes to salespeople.
Pros: Fosters a sense of shared success and encourages collaboration.
Cons: Less direct correlation between individual efforts and earnings.
Profit Margin-Based Commission
Structure: A more nuanced verson of revenue sharing, where commission is tied to profitability.
Pros: Aligns the interests of sales and profitability.
Cons: Complex to calculate, and transparency is crucial to keep morale up.
Revenue Per Account
Structure: A set commission for each customer account they bring in or manage.
Pros: Useful for businesses focusing on customer retention and relationship-building.
Cons: Smaller accounts may be neglected in favor of focusing on bigger fish.
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Other incentive structures
Draws Against Commission
Structure: Salespeople get an advance (draw) on their future commissions, which they have to earn out.
Pros: Provides financial stability during slow periods.
Cons: Requires careful tracking and management to avoid overpayment.
Bonuses for Achieving Targets
Structure: Extra bonuses for reaching specific sales targets, e.g. closing a certain number of deals
Pros: Useful for targeted motivation when the business has a specific need.
Cons: Can be seen as one-time incentives and may not drive consistent effort.
Performance-Based Salary Increases
Structure: Base salary increases based on achieving predefined sales targets.
Pros: Offers a structured approach to salary growth tied to performance.
Cons: Requires clear and measurable performance metrics.
Customer Retention Bonuses
Structure: Bonuses awarded for retaining clients or achieving high customer satisfaction.
Pros: Encourages a focus on customer relationships and long-term value.
Cons: May take time to see the impact on earnings.
These are the common systems I’ve seen. There are also, of course, non-financial incentives (free vacations, dinners, concert tickets, etc) — which can be used as an individual or a team reward.
I’ve also seen some people set up clawbacks, where the salesperson can lose bonuses, e.g. if a customer churns before a certain date. These can be toxic for morale, so use with caution. Better to choose incentives you can give with no strings attached.
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