8 Sales Commission Structures Explained (with Formulas & Examples)

The commission structure you choose shapes how your sales team behaves, how much they earn, and how profitable each deal is for your company. Choose the wrong structure and you create misaligned incentives that reward the wrong behaviors, overpay on low-value deals, or underpay your best performers until they leave.

This guide covers eight commission structures used across B2B and B2C sales organizations, complete with formulas, worked examples, and guidance on when each structure works best. Whether you are designing your first commission plan or optimizing an existing one, understanding these building blocks is essential.

1. Flat Rate (Straight Commission)

The flat rate structure is the simplest commission model. Every dollar of revenue (or every deal) pays the same fixed percentage, regardless of volume or attainment.

Formula

Commission = Revenue x Rate

Worked Example

A rep closes a $100,000 deal at a 10% flat commission rate.

• Commission = $100,000 x 0.10 = $10,000

If that same rep closes $500,000 in a quarter, their total commission is:

• Commission = $500,000 x 0.10 = $50,000

Pros

• Dead simple to calculate and communicate
• Easy for reps to predict their earnings
• No quota-setting complexity
• Works well for transactional, high-volume sales

Cons

• No incentive to overperform (the marginal dollar pays the same as the first)
• No penalty for underperformance
• Company bears revenue risk if base salary is zero (pure commission roles)
• Can lead to income instability for reps

Best For

Real estate, insurance, wholesale distribution, and any role where deal volume is high and the company wants a simple, predictable cost-of-sale.

2. Base Salary Plus Commission

This is the most common commission structure across B2B sales. Reps earn a guaranteed base salary plus variable commission tied to their closed deals or quota attainment.

Formula

Total Compensation = Base Salary + (Revenue x Commission Rate)

Worked Example

A mid-market SaaS AE earns $110,000 base salary with a 10% commission rate on new ACV. They close $900,000 in a year.

• Base: $110,000
• Commission: $900,000 x 0.10 = $90,000
• Total compensation: $200,000

The Base-to-Variable Split

The ratio between base salary and target variable pay is called the pay mix. Common splits include:

• 50/50: Equal base and variable. Aggressive. Common in SaaS and tech.
• 60/40: Slightly higher base. Standard for mid-market B2B.
• 70/30: Higher base with moderate variable. Used in enterprise sales with long cycles.
• 80/20: Mostly base. Common in account management and customer success roles.

A higher variable percentage creates more urgency but also more income volatility. A higher base percentage provides stability but reduces the motivation to outperform.

Pros

• Balances risk between company and rep
• Provides income stability for reps (recruiting advantage)
• Commission component drives performance
• Flexible: adjustable split based on role complexity

Cons

• More complex to administer than flat rate
• Requires setting quotas to define "100% attainment"
• Base salary represents fixed cost even when reps underperform

Best For

Most B2B sales roles: SaaS, technology, financial services, professional services, and any role where you want to attract experienced reps with competitive base salaries while maintaining strong performance incentives.

3. Tiered / Graduated Commission

Tiered commission (also called graduated commission) increases the commission rate as a rep moves through predefined revenue brackets. Each tier pays a different rate, and only the revenue within that bracket earns the bracket's rate.

Formula

Commission = Sum of (Revenue in Each Tier x Tier Rate)

Worked Example

A plan with three tiers:

• Tier 1: 0-$100K at 8%
• Tier 2: $100K-$250K at 10%
• Tier 3: $250K+ at 12%

A rep closes $320,000 in revenue:

• Tier 1: $100,000 x 0.08 = $8,000
• Tier 2: $150,000 x 0.10 = $15,000
• Tier 3: $70,000 x 0.12 = $8,400
• Total commission: $31,400

Notice that only the revenue within each bracket earns that bracket's rate. The first $100K always pays 8%, regardless of how much total revenue the rep closes. This is identical to how progressive income tax brackets work.

Pros

• Rewards overperformance with escalating rates
• Creates natural accelerators as reps hit higher tiers
• Predictable cost-of-sale for the company at each revenue level
• Motivates reps to push past tier boundaries

Cons

• More complex to calculate than flat rate
• Reps may not fully understand how tiers work (common misconception that hitting a new tier retroactively changes the rate on all revenue)
• Requires careful tier boundary design to avoid "dead zones"

Best For

SaaS, technology, and any B2B organization that wants to reward over-quota performance without the aggressive payout profile of retroactive structures. This is the most commonly used tiered structure.

4. Retroactive Commission

Retroactive commission recalculates all revenue at the highest tier rate once a rep crosses into a new tier. This creates a step-function increase in commission when a rep hits a tier boundary, which can be a powerful motivator.

Formula

Commission = Total Revenue x Highest Tier Rate Achieved

Worked Example

Using the same tier boundaries as the graduated example:

• Tier 1: 0-$100K at 8%
• Tier 2: $100K-$250K at 10%
• Tier 3: $250K+ at 12%

A rep closes $320,000 in revenue. Since they crossed the $250K threshold, all $320K is recalculated at 12%:

• Commission = $320,000 x 0.12 = $38,400

Compare this to the graduated payout on the same revenue: $31,400. The retroactive structure pays $7,000 more (22% more) on the exact same revenue.

The Step-Function Effect

The retroactive model creates a dramatic incentive near tier boundaries. A rep sitting at $245K has enormous motivation to close one more deal and trigger the retroactive recalculation. Consider:

• At $249K (Tier 2): Commission = ($100K x 0.08) + ($149K x 0.10) = $22,900
• At $251K (Tier 3): Commission = $251K x 0.12 = $30,120

That incremental $2K in revenue generates an additional $7,220 in commission due to the retroactive effect. This is by design: retroactive plans create "must-hit" moments that drive urgency.

Pros

• Extremely motivating near tier boundaries
• Simpler to communicate than graduated ("hit $250K and everything pays at 12%")
• Creates clear milestone targets

Cons

• Higher cost-of-sale than graduated plans
• The step-function can incentivize deal-timing manipulation (holding deals to bunch them in one period)
• Commission expense is less predictable

Best For

Companies that want aggressive motivation for top-line growth and are comfortable with higher variable payouts. Common in fast-growing startups where acquiring new revenue is the top priority.

5. Marginal Commission

Marginal commission is the most granular tier calculation method. Rather than applying tiers to cumulative revenue (like graduated) or all revenue (like retroactive), marginal commission attributes each deal proportionally across the tiers based on where the rep's cumulative revenue stood before and after the deal.

Formula

For each deal, determine which portion of the deal falls into each tier based on the rep's cumulative pre-deal and post-deal position:

Deal Commission = Sum of (Deal Portion in Each Tier x Tier Rate)

Worked Example

Same tiers:

• Tier 1: 0-$100K at 8%
• Tier 2: $100K-$250K at 10%
• Tier 3: $250K+ at 12%

A rep has closed $90K so far and lands a $40K deal:

• Pre-deal position: $90K (in Tier 1)
• Post-deal position: $130K (in Tier 2)
• Tier 1 portion of deal: $10K (from $90K to $100K boundary) at 8% = $800
• Tier 2 portion of deal: $30K (from $100K to $130K) at 10% = $3,000
• Deal commission: $3,800

The marginal method ensures each deal is compensated based on the exact tiers it spans at the moment it closes. This creates the most precise alignment between deal economics and commission payout.

Pros

• Most precise tier calculation method
• Fair per-deal attribution (no windfall from tier jumps)
• Predictable, incremental commission payouts
• No deal-timing manipulation incentive

Cons

• Most complex to calculate and explain
• Reps may struggle to predict exact earnings on each deal
• Requires real-time tracking of cumulative position

Best For

Organizations with sophisticated sales ops teams that value precision and fairness over simplicity. Commonly used in financial services, insurance, and large enterprises with mature compensation analytics.

6. Draw Against Commission

A draw is an advance payment given to a rep against future commission earnings. The draw amount is deducted from commissions as they are earned. Draws come in two forms: recoverable and non-recoverable.

Recoverable Draw

The company pays a guaranteed amount (say $5,000/month) as an advance. As the rep earns commissions, the draw balance is repaid. If commissions in a month are less than the draw, the shortfall carries forward as a negative balance.

Example:

• Monthly draw: $5,000
• Month 1 commissions: $3,000 → Rep receives $5,000, owes $2,000
• Month 2 commissions: $8,000 → Rep receives $8,000 - $2,000 = $6,000 (balance cleared)
• Month 3 commissions: $7,000 → Rep receives $7,000 (no outstanding balance)

Non-Recoverable Draw

Same concept, but the negative balance is forgiven at the end of the draw period. If a rep earns less in commission than the draw amount, they keep the draw and owe nothing back.

Example:

• Quarterly draw: $15,000 ($5,000/month)
• Quarter commissions total: $10,000
• With recoverable draw: Rep owes $5,000 (carries to next quarter)
• With non-recoverable draw: Rep keeps $15,000, deficit is forgiven

Pros

• Provides income stability during ramp-up periods
• Reduces financial risk for new hires
• Recoverable draws align long-term incentives
• Non-recoverable draws are a strong recruiting tool

Cons

• Recoverable draws can create debt spirals for underperformers
• Non-recoverable draws are expensive if reps consistently underperform
• Administrative complexity in tracking draw balances
• Can reduce urgency in the short term

Best For

New hire ramp periods (first 3-6 months), seasonal businesses with uneven deal flow, and industries transitioning reps from salary to commission. Real estate, insurance, and financial advisory firms frequently use draws.

7. Residual / Recurring Commission

Residual commission pays reps an ongoing percentage of revenue from their accounts for as long as those accounts remain active. This is most common in subscription businesses, insurance, and any industry with recurring revenue streams.

Formula

Monthly Residual = Active Account MRR x Residual Rate

Worked Example

A rep has built a book of 50 accounts generating $200K in monthly recurring revenue (MRR). Their residual commission rate is 2%.

• Monthly residual: $200,000 x 0.02 = $4,000/month
• Annual residual: $48,000

As the book grows, residual income compounds. After three years with $600K MRR:

• Monthly residual: $600,000 x 0.02 = $12,000/month
• Annual residual: $144,000

Many companies reduce the residual rate over time (e.g., 5% in year one, 3% in year two, 1% thereafter) to encourage reps to focus on new business acquisition.

Pros

• Aligns rep incentives with customer retention
• Creates compounding income that rewards tenure
• Reduces churn (reps proactively maintain accounts)
• Attractive for recruiting (long-term earning potential)

Cons

• Expensive if not managed with declining rates
• Can reduce new business motivation as residual income grows
• Account ownership disputes when territories change
• Complex to administer across hundreds of accounts

Best For

Insurance agencies, SaaS companies that want reps to own the full customer lifecycle, telecom, managed services, and any subscription business where customer retention directly impacts revenue.

8. Multi-Component Plans

Most sophisticated sales organizations do not use a single commission structure in isolation. Instead, they combine multiple structures into a multi-component plan that aligns different incentives across different revenue types and behaviors.

Common Components

A typical multi-component plan might include:

• Base commission: 10% on new business ACV (tiered/graduated)
• Expansion commission: 5% on upsell/cross-sell ACV
• Renewal commission: 2% on renewed ARR
• SPIFs: $500-$2,000 per-deal bonuses for strategic product lines or competitive displacements
• Accelerators: 1.5x multiplier on all commission above 100% quota attainment
• Multi-year bonus: 2% additional for deals with 2+ year terms

Worked Example

A SaaS AE has the following results in Q3:

• New business: $300K ACV (quota was $250K = 120% attainment)
• Expansion: $80K ACV
• Renewals: $400K ARR
• One competitive displacement deal ($2K SPIF)

Commission calculation:

• New business (at 100%): $250K x 0.10 = $25,000
• New business (above 100% at 1.5x): $50K x 0.10 x 1.5 = $7,500
• Expansion: $80K x 0.05 = $4,000
• Renewals: $400K x 0.02 = $8,000
• SPIF: $2,000
• Total Q3 commission: $46,500

Pros

• Precisely incentivizes multiple strategic behaviors
• Can target specific business objectives (new logos, expansion, retention)
• Flexible: components can be added, adjusted, or removed as priorities shift
• Supports complex go-to-market motions

Cons

• Most complex to design, communicate, and administer
• Risk of over-engineering (too many components dilute focus)
• Requires robust commission management software to calculate accurately
• Reps may struggle to optimize behavior across too many variables

Best For

B2B SaaS, enterprise technology, and any organization with multiple revenue streams and strategic priorities. The key is to limit components to 3-5 to maintain clarity while still driving the right behaviors.

How to Choose the Right Structure

Selecting a commission structure depends on your business model, sales cycle, team maturity, and strategic priorities. Here is a decision framework to guide your choice.

By Sales Cycle Length

• Short cycle (< 30 days): Flat rate or base + commission. Simplicity is key when deal volume is high.
• Medium cycle (1-6 months): Base + tiered commission. Graduated tiers reward consistent performance throughout the period.
• Long cycle (6+ months): Base + commission with quarterly or semi-annual measurement periods. Consider retroactive tiers to create "big moment" motivation.

By Deal Size

• Small deals (< $10K): Flat rate or simple base + commission. Tier complexity is not worth the overhead.
• Mid-market ($10K-$100K): Graduated tiered commission. Tiers create meaningful performance milestones.
• Enterprise ($100K+): Multi-component plans with deal-level SPIFs, multi-year bonuses, and team-based overlays.

By Team Maturity

• New team (< 1 year): Simple flat rate or base + commission with generous draws. Minimize complexity while reps learn the product and market.
• Growing team (1-3 years): Introduce graduated tiers and accelerators. Reps understand the selling motion and benefit from stretch incentives.
• Mature team (3+ years): Multi-component plans with SPIFs, expansion/renewal commissions, and role-specific structures. The ops infrastructure exists to support complexity.

By Strategic Priority

• Revenue growth: Retroactive tiers and aggressive accelerators above quota
• Customer retention: Residual/recurring commission and renewal bonuses
• Product adoption: SPIFs on strategic product lines
• Market expansion: Higher rates on new logos vs. existing accounts
• Profitability: Margin-based commission (commission on gross profit rather than revenue)

Frequently Asked Questions

Which commission structure is the most common?

Base salary plus commission with tiered/graduated rates is the most widely used structure across B2B sales organizations. According to industry surveys, roughly 70% of B2B companies use some form of base plus variable compensation, with tiered accelerators appearing in about half of those plans.

What is the difference between graduated and retroactive commission?

Graduated commission pays each tier rate only on the revenue within that tier bracket (like tax brackets). Retroactive commission recalculates all revenue at the highest tier achieved. Retroactive plans pay more at the same revenue level and create stronger motivation near tier boundaries, but cost more to operate.

How do accelerators work?

Accelerators increase the effective commission rate above certain attainment thresholds, typically 100% of quota. A 1.5x accelerator above quota means the commission rate on over-quota revenue is 50% higher than the base rate. For example, if the base rate is 10%, the accelerated rate is 15%. Accelerators can be stacked: 1.5x from 100-150% and 2x above 150%.

Should commissions be capped?

Most compensation experts recommend against hard caps. Caps demotivate top performers, encourage sandbagging (holding deals for the next period), and can cause your best reps to seek uncapped opportunities at competitors. If you need to manage costs, consider decelerators (reduced but still positive rates) at very high attainment levels rather than hard caps.

How do you calculate OTE with tiered commission?

On-Target Earnings (OTE) is the total expected compensation when a rep achieves exactly 100% of quota. For a tiered plan: OTE = Base Salary + Sum of (Quota Portion in Each Tier x Tier Rate). If quota is $1M with tiers of 8% up to $500K and 10% from $500K-$1M, the variable at 100% is ($500K x 0.08) + ($500K x 0.10) = $40K + $50K = $90K. Add the base salary for total OTE.

What is a SPIF?

SPIF stands for Sales Performance Incentive Fund. SPIFs are short-term, per-deal bonuses paid on top of the standard commission plan. They are typically used to drive specific behaviors like selling a new product, winning competitive displacements, or closing multi-year deals. Common SPIF values range from $500 to $5,000 per qualifying deal.

How often should commission structures change?

Major structural changes should happen no more than once per year, ideally aligned with your fiscal year planning. Mid-year structural changes erode trust and make it difficult for reps to plan their selling strategy. Minor adjustments like SPIF additions or temporary accelerators can happen quarterly without disruption.

Can you combine multiple commission structures?

Yes, and most mature sales organizations do. A typical enterprise SaaS plan might combine base + tiered commission on new business, flat rate commission on renewals, SPIFs on strategic products, and accelerators above quota. The key is keeping the total number of components manageable (3-5) so reps can clearly understand how their behaviors translate to earnings.

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Understanding these eight commission structures gives you the building blocks to design compensation plans that drive the right behaviors for your business. The best plans are not always the most complex; they are the ones that clearly connect rep performance to business outcomes.

SimpleRev supports all of these structures natively, including graduated tiers, retroactive tiers, marginal tiers, multi-component plans, SPIFs, and accelerators. You can build your first plan in minutes using our AI-powered plan builder. Get started free or model different structures with our commission calculator.