Sales Compensation Plans – Templates and Examples

Sales compensation plans are an important part of every salesperson’s decision to work for a company. Once a salesperson makes the decision to work for a company, the company must follow certain guidelines to ensure the salesperson’s success. A successful sales compensation plan is not just a one-size-fits-all formula that everyone must follow; it is a formula that is based on the individual needs of the salesperson.

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Sales Compensation Plans – Templates and Examples. Sales compensation plans are an industry used to help small businesses determine the compensation they will offer employees. The plans vary by type, whether it be commission, salary, bonus, etc. The following are sample plans for a company that employs a sales employee.. Read more about sales compensation plan examples and let us know what you think.

Great commission structures and sales incentive programs must achieve a lot. Employees in customer-facing positions should be fairly compensated via a suitable pay plan and sales commission structure.

It must encourage particular behaviors and activities that serve both the company’s and the customer’s interests.

Of course, a robust sales compensation plan with substantial sales commissions is required to encourage sales representatives to achieve objectives that help the business expand while preserving a profit margin.

What is a Sales Compensation Plan, and how does it work?

A sales compensation plan specifies how various salespeople will be compensated for their contributions to the company. It will usually consist of two parts: base pay and variable compensation, often known as incentive pay or commission.

Only commission is paid in certain sales compensation schemes, whereas only base pay is paid in others. The majority of them combine the two.

How to Make a Compensation Plan for New Sales Reps

Whether you’re starting from scratch or revamping an existing sales compensation plan, you should follow these stages in order:

  1. Recognize the Basic Requirements of a Successful Sales Compensation Plan
  2. Determine Role Levels
  3. Calculate your total on-target earnings (OTE)
  4. Decide on a base salary and a commission structure for sales.
  5. Set goals for yourself.
  6. Compensation for onboarding and training should be planned ahead of time.
  7. What Should a Sales Incentive Plan Contain?
  8. Make a contract and ensure that both parties are committed. [A TEMPLATE HAS BEEN PROVIDED]

Step 1: Recognize the Fundamental Requirements of Effective Sales Compensation Plans

A successful sales compensation plan is a win-win-win situation: it’s simple to execute and beneficial to all parties involved. Here are five things to consider when you design yours.

Maintain a straightforward approach. A single-page overview of your compensation strategy is required.

Demonstrate causation. Make a compensation that is directly linked to the intended outcome.

Consider the term “short.” Maintain a 60-day interval between activity and compensation.

Make sure everyone is treated fairly. All compensation must be equitable and fair to all.

Make it simple. It must be simple to measure and administer.

Step 2: Determine the various levels of responsibility.

Establishing your job levels may be a difficult task. Create just three tiers depending on experience levels to prevent being bogged down.

  1. Entry-level
  2. Baseline
  3. Top Performer/Experienced

To start, here’s a basic example that includes the SDR, AE, and Customer Success Manager (CSM) roles:


Table 1 shows a summary of three titles.

You can simply distinguish between untested, new workers and those with experience using these three job levels. It also allows you to give “micro promotions,” which may assist encourage employees, particularly those who are just starting out in their professions.

Step 3: Calculate Total Earnings On Target (OTE)

You must first decide on On-Target Earnings, or OTE, before you may decide on base pay or commission-based compensation.

On-Target Earnings (OTE): the yearly salary a person would get. It consists of two parts: a basic income and a sales-based incentive plan, often known as commission or variable compensation.

Be advised that your OTE will vary based on your location (and possibly your industry).

Here’s an example of OTE levels for a Bay Area SaaS company recruiting sales talent:


Table 2 shows an overview of sales remuneration in the Bay Area by position.

NOTE: Any sales commission should not be referred to as a “bonus.” A bonus is typically offered on the moment and is not guaranteed. A compensation plan (also known as an incentive plan) is exactly what it sounds like: a plan. It links remuneration to the accomplishment of particular goals, such as:

  • pre-determined
  • provided information about the reward scheme
  • workers were informed in a clear and concise manner

Step 4: Establish a base salary and a commission structure for sales.

Variable pay aims to foster a performance-driven culture in which your sales staff is held financially responsible for their achievements.

The ratio of base salary to sales commission is referred to as “leverage.”

A highly leveraged compensation plan is one with a large variable and a low base pay. Highly leveraged programs appeal to certain executives since you only pay for outcomes.

But be cautious…

This may lead to a slew of problems.

Senior sales talent and top achievers, for example, may be uninterested since individuals who depend significantly on sales commissions are penalized by the banking system when applying for a mortgage, auto loan, or any other kind of credit.

Transactional sales, where volume is very high at cheap prices, and where highly leveraged sales compensation schemes are most common.

Let’s have a look at some instances. Here are some examples of high-leverage and low-leverage compensation schemes, as well as the scenarios in which they may be used:


Table 3 shows a list of frequent leverages.

Depending on where you work, your OTE and the split between base salary and sales commission may differ. If my customers are uncertain about the job market’s expectations, I generally suggest that they speak with a local recruiter.

Here are a few more factors that may influence pay:


Table 4 shows the factors that influence sales compensation schemes.

Take a look at the range of wages for an AE as of Mid 2024, just to give you an idea:

  • Base/Sales Commission: $80,000 / $80,000 / OTE $160,000 AE is headquartered in Atlanta.
  • Base/Sales Commission: $75,000 / $75,000 / OTE $150,000 for a Denver-based AE.
  • AE located in New York/San Francisco. Base/Sales Commission: $100,000 / $100,000 / OTE $200,000

Obviously, the proportion of base salary vs commission compensation varies by job.

Step 5: Set Goals

The way you establish goals is determined by your company strategy. A broad variety of variables must be considered, including:

  • your financial situation
  • if you are paid on a regular basis
  • how do you price your services

I’ll use it as an example since many SaaS companies have comparable financial structures.

For a platform product with an average contract value (ACV) of $25k, there are three target-setting models to consider:

1) Setting Goals from the Top Down

Divide the number of salespeople by the Annual Recurring Revenue (ARR) you want to generate.

Let’s assume you desire $4 million in annual revenue and have four salesmen.

$4 million divided by four is $1 million in annual revenue per salesperson.

The Annual Contract Value (ACV) per transaction is then divided.

So, assuming a $25K ACV…

$1 million in annual revenue per salesperson / $25 thousand in annual revenue = 40 deals secured each year

40 offers divided by 12 months is 3 bargains each month.

The issue with this older B2B method is that it is unpredictable, and it is difficult to pinpoint where problems occur.

2) Setting Goals from the Ground Up

Use 80 percent of the greatest month ever as a benchmark for “till date” statistics.

The goal for a new salesman would be $640K if your Founder completed $800K in business in the previous 12 months at an ACV of $25K.

$800,000 multiplied by.80 is $640,000 per salesperson.

25 transactions each year = $640K / $25K ACV

We’ll need approximately 6 salesmen to reach our $4 million revenue target.

$4 million divided by $640,000 each salesman equals six salespeople.

A founder-based sales strategy is not scalable, which is the flaw in this approach. Sales representatives can’t accomplish all that founders can.

This is a frequent occurrence in today’s sales environment, since the expenses of gaining a customer have skyrocketed.

3) Setting Business-Case Goals (Recommended)

One SDR ($80K), one Jr. AE ($160K), and 12 CSMs ($120K/2) prospect, win, and onboard 20 transactions per month at a $25K ACV for the sales acquisition team.

Each year, such amount of growth costs $300,000. To benefit from that increase, the team has to bring in at least $300,000, but we suggest two times that amount ($600,000).

Why? The squad requires three months to build up:

  • Year 1: $600,000 / $25,000.00 = 24 transactions (take into account a 3-month ramp)
  • Year 2: $900,000 / $30,000 = 30 transactions

Here’s an example of how goals may be established across roles in a SaaS model:


Table 5 shows a breakdown of sales goals by position.

NOTE: LTV (Lifetime Value) has a huge effect.

The average length of time someone uses your product after purchasing it is referred to as lifetime value (LTV).

Within the FedTech sector, for example, sales contracts with a three-year commitment may be created. This enables for more generous sales incentive schemes than at AdTech firms, where the average LTV is just nine months.

We recommend spending less than 40% of year-one sales on the entire OTE of your SDR, AE, and CSM for new products whose LTV has not yet been established.

For the same reason, we advise companies with LTVs of more than two years to spend less than 60% of their first-year sales.

When is it appropriate to pay a sales commission?

Is it better to pay commission on bookings or on cash collections?

Because a scheduled customer does not ensure cash collection, this is a sensitive issue.

Here are some basic considerations to consider if you wish to utilize this method:

Deals are accelerated and growth is aided by compensation against bookings. Compensation for cash collections, on the other hand, enhances the quality of transactions and is frequently employed throughout maturity.

Early-stage businesses dislike paying commissions before receiving paid, but compensating with cash rewards is ineffective.

Here are a few of the most serious issues with cash-based sales incentive structures:

  • Because causation is difficult to prove with a delayed incentive, it is difficult to assess how the incentive scheme impacts performance.
  • Because cash payments are frequently delayed for up to 45 days after the transaction closes, it is more difficult to inspire a team.
  • It increases turnover and sends a signal to top sales talent to avoid your business since they think “something is wrong” if they can’t pay their salespeople on time.

There are other simpler methods to guarantee that commissions are paid only when a client pays:

  • The following month will be Clawback. Any transactions that fall through after signing may be deducted from the commissions payment for the following month.
  • Alternatively, you may simply increase your quota to accommodate for anticipated attrition.

Step 6: Make Onboarding and Training Compensation Plans

Any expert earning $10,000 in sales commissions per month will find it difficult to agree to forgo that money for three months in order to work for you.

As a result, it’s common for new representatives to request more remuneration during onboarding. During ramp, there are many methods to arrange sales compensation programs.

Assume you employ an AE with the expectation of paying $10K in commissions per month after they’ve been scaled up. Let’s have a look at various ways you might recompense that individual in the first few months of employment.

Draw That Isn’t Recoverable

A guaranteed payment that is deducted if the salesperson meets their commission goals.

You pay the sales person $6.67K each month, for example. You pay the remaining $3,333 more if they close $10,000 in commission. They retain the remaining $1,667 if they only close $5,000 in commission.

As part of their sales compensation plan, every sales executive at a start-up will seek a non-recoverable draw.

Draw That Can Be Recovered

In effect, it’s a month-to-month loan secured by commission.

For instance, suppose you pay $6,667 each month in advance. $1,667 rolls over to the following month if they only close $5,000 in commission. If they reach $10,000 the next month, $1,667 is withheld from their payout.

If your sales person is taking over an established area where the brand name helps close 80% of the business, a recoverable draw makes more sense.

What’s the difference between a clawback and a recoverable draw?

Let’s look at how a recovered draw differs from a clawback to clear up any misunderstandings.

A clawback, unlike a recoverable draw, compels the salesperson to promptly repay the business if they do not meet commission. So the employee receives the money up front, but must immediately return $1,667 if they only earned $5,000 in commission sales.

Clawbacks may also be utilized to recover commissions paid on transactions that churn within three months of acquisition. Deals like these happen when you sell to the wrong person. After the 3-month mark, any customers that churn are deemed the responsibility of the Customer Success team.

A Draw as an Example

Here’s a table that shows how a draw for an AE onboarding over the course of four months could function. The fourth line indicates how much you’d lose if you choose a non-recoverable draw. The fifth line indicates how much you’d be paid if you agreed to a recoverable draw.


Table 6 shows the effects of recoverable vs. non-recoverable draws.

This example is linear and is based on a ten percent of sales compensation plan with a $900,000 goal. On target commissions would be $90,000 per year, or approximately $7.5, 000 per month. We’ve also presumptively anticipated a 90-day ramp.

Getting a Draw

Here are some suggestions for motivating your new hire to win the non-recoverable prize:


90-Day Onboarding Program (Table 7)

Step 7: Determine What Should Be Included in a Sales Incentive Program

Several important parts of your incentive plan should explicitly outline your sales commission structure.

Commission Payments: Monthly vs. Quarterly

The proof is in the pudding: making monthly payments reduces the hockey-stick impact (when a disproportionate amount of revenue closes at the end of the quarter). There are just a few of exceptions to this rule.

Payment Schedule

With commissions accounting for up to 50% of total remuneration, you must pay commissions on schedule and with the same care as any other salary payment.

The standard is one payment cycle after the quarter ends, for example, within 30 days after the month’s end.

Compensation Limits

This safeguards the upside. “Capped at $400,000 annually,” for example, implies that if total compensation reaches $400,000, the individual will not be paid more than $400,000.

This is standard procedure in businesses with big teams working on significant acquisitions. Following a series of meetings between the CEO and VPs — but not AEs — a Fortune 500 firm may decide to implement an enterprise-wide solution. Capping may apply, and the AE should be informed.


To deal with unforeseen situations, sales compensation plans should include a CxO/VP override.

My team, for example, went $400K shy of quota one year. To make up for the deficit, my CEO collaborated with a board member to have another portfolio business “buy” our solution. This is a case when the override was imposed on me.

Compensation that is reasonable

Sales remuneration is subjected to a great deal of scrutiny, and for good cause. What is the goal? To be treated equally regardless of gender, age, color, or other factors.

However, in reality, performance often takes precedence over equality, which may be problematic.

For example, a VP of sales may bring back a previous sales performer or individual contributor at a higher pay rate since they are a well-known entity.

When this occurs, it may result in unequal remuneration. It may also result in the firing of another artist to make space for this celebrity. It may be grounds for a lawsuit in any case.

Another example is underachievers. If you decide to let them leave, keep in mind that if the contributor was not properly paid during their time with you, you may be liable for a lawsuit, even if they underperformed.

Fair Compensation Commission

Portfolio businesses with more than 25 employees should form a Fair Compensation Board, according to Winning By Design. It stipulates that the CEO, an internal executive, an industry expert (typically a board member), and an external HR professional evaluate pay on a quarterly basis to guarantee fairness.

Using a fair compensation board will keep you from recruiting individuals with ridiculous pay packages. It also enables you to keep track of underappreciated performers who might be placed on a fast track to success.

Step 8: Form a Contract and Secure Mutual Commitment [Template]

Look no further if you need a sales compensation plan template.

Here’s some sample text for creating a documented version of your now-completed sales compensation plan.

Example of a Sales Compensation Plan (Appendix A) Revision 23rd of April, 2019 This document outlines the conditions of a sales incentive pay agreement between (“Company”) and (“Payee”). Payee performs services to the Company in exchange for remuneration stated in this agreement, and the Company and Payee engage into this agreement.

SaaS Compensation Model A1 Table 1A: Payee Sales Compensation Plan Overview

Every month, all commissions will be computed and paid for the previous month. Following the month for which commissions are computed, commissions will be calculated and paid out as part of the next payroll cycle. Sales Reps are paid a basic salary of , which is paid every . Expenditures – All travel and lodging expenses connected to sales activities will be reimbursed to the Account Executive within 30 days of receipts and a completed and approved expense reimbursement form being submitted.

Lodging and Travel

  • Reimbursement for automobile trips is based on the current government reimbursement rate.
  • Mobile phone: As part of doing sales business, sales reps will be expected to have a cell phone. For mobile phone use, the Sales Rep will be given a monthly limit of $50.

The following expenditures for client entertainment will be reimbursed:

  • Reimbursable with receipts for meals and coffee.
  • Special Events: Must be authorized in advance. Receipts are required for reimbursement.

Draw — Based on participation and completion of the 90 Day Onboarding Program, the payee gets an unrecoverable monthly draw against the sales incentive plan as follows.

SaaS Compensation Model A2 Table 2: Month-by-Month Eligible Draw

  • Clawback — To earn your entire commission without clawback, the client must be active for at least three months from the time we begin invoicing them. If a client cancels before the 3-month mark, a prorated portion of your compensation will be deducted from the sales earned.
  • Draw Clawback – If the payee quits the job voluntarily during the first six months of the plan, the Draw payment(s) will be due back to the Company through a payroll deduction from any funds owing to Payee.
  • Splits — At the discretion of the VP of Sales, commissions may be divided with other Payees on a deal-by-deal basis.
  • Termination of Employment – If a Payee’s employment with the Company is terminated, commissions will only be paid on transactions completed prior to the termination date. After withholding taxes and other dues, any amounts owing to the Payee will be calculated according to employment rules.
  • 90-Day Onboarding Program — The onboarding program will last 90 days, and the Payee must complete the following tasks in order to be eligible for the Draw, as stated in Table 2.

SaaS Compensation Model A3 Table 3 outlines the 90-day onboarding program.

Other Crucial Terms

  1. During the term of this agreement, the Payee undertakes to abide by all federal, state, and local laws while delivering services to the Company.
  2. During the duration of this agreement, the payee will not work for anybody else. Company retains the right, in its sole discretion, to compel Sales Rep to terminate any other job.
  3. When participating in any commercial activity, the payee must follow the most ethical standards.
  4. Payee undertakes to keep all confidential information belonging to the Business private, including prospect data, sales data, and client information, and to take all reasonable precautions to ensure that such information is not shared with anybody outside the company.
  5. The laws of the State of shall govern this whole agreement.
  6. Without reason, the VP of Sales retains the right to overrule the provisions of this agreement.

SaaS Compensation Model A4

Templates for Sales Compensation Plans and Commission Structures

You may look at these examples after you’ve figured out how to establish a fair pay plan for your sales team:

Example of a Compensation Plan for a Sales Development Representative (SDR)

For representatives in a prospecting position, this is how the sales pay plan should operate. This may range from an entry-level inbound SDR position to a senior SDR with 1–4 years of experience calling on important clients.

Example of a Compensation Plan for an Account Executive (AE)

For individuals in closing positions, the compensation plan should look like this. This plan may be used by anybody with 3–5 years of experience (AE) or 4–8 years of experience (AE) (Sr. AE).

Example of an SDR Sales Compensation Plan


  • Model of operation: $900,000 in annual revenue spread over 30 transactions with a $30,000 average contract value
  • $40,000/$40,000 fully scaled SDR compensation
  • 1 in 5 chances of winning (this is the norm in SaaS sales vs. 1 in 3 in perpetual sales)
  • Fully boosted lifecycle

Model: To win 30 transactions per year, $40,000 in variable compensation must result in enough deals.

  • Linear model: 30 transactions each year x 1:5 win rate = 150 leads every year $40,000 divided by 150 is $267 per SQL. Alternatively, $250/SQL. Because the SDR produces 12 SQLs each month, the commission is $3,000 per month. This also implies that if you win a contract with an ACV of $30,000 and a 1 in 5 win chance, you’ll have to pay $1,250 for 5 SQLs.

NOTE: In contrast, it is typical to spend $500 to $1,000 for a meeting with a decision-maker arranged by a third party. A referral pay of 5% ($1,500) for a manager/VP level introduction and 10% ($3,000) for a CxO/Board level introduction is also typical.

  • The accelerated model is used to influence behavior in order to qualify the appropriate transactions.
    • Because this is the business model, we plan to spend $1,250 on 5 SQLs.
    • We then pay a lower price per SQL, say $150.
    • So we pay a total of $750 for 5 SQLs at $150 each.
    • We now pay out $500 for every transaction we conclude, leaving us with $500.
    • You end up spending the same amount, but you’ve changed your habit to identify good SQLs.
  • Model of operation:
    • Drive a new market opening: $150 for a medical business, $250 for a financial institution.
    • Drive for seniority: a meeting with a manager costs $100, while a meeting with a CxO/VP title costs $150.

IMPORTANT: The definitions of a SQL and a SAL should be clearly stated either in the comp plan or on a poster on the wall where all team members can see it. We urge you to provide instances of not just what a SQL is, but also what does not constitute a SQL.


Table 8 is an example of a compensation plan for a sales development representative.

SaaS Compensation Model 12 Table 9 is an example of a Sales Development Representative’s pay.

  • Model with two parts:
    • The SDR function has come under fire since their compensation plans have been subjected to market criteria that are constantly adjusted. Whereas it was formerly possible to generate 30-40 SQLs/SDR each month, now we are looking at 10-15 SQLs/SDR per month. This varies by market, location, and other factors. You may find yourself following the model and concluding that you need to pay the SDR $500 or even $1,000 per SQL because to the reduced SQL count. A high dollar value per SQL, for example, encourages an SDR to cheat the system. In such instances, we suggest splitting the model to the point where the price per SQL is reduced to about $200-250 (following the accelerated model) and remuneration is added for productivity in the form of emails, calls, event sign-ups, visits to a tradeshow booth, and so on.


Table 10: Important Metrics to Consider

You may compensate on Sales Qualified Leads for a Meeting to create volume (SQL). This may result in a large number of unqualified transactions coming in. Set the Sales Accepted Lead to a level of performance that AE can accept (SAL). This provides you with three choices for ensuring quality.

  • Make up for lost SQLs by lowering the price per SQL from $100 to $50. It’s worth noting that you’re wasting AE’s time, since they have a lot of unqualified calls.
  • Instead of SQLs, compensate using SALs. This lowers velocity and creates a tense relationship between the SDR and the AE, since the AE disqualifies transactions on which the SDR has worked hard.
  • By changing the weight of the pay to a comp plan, $50/SQL + $500/deal won, you may add a Quality Measure.
  • At the end of the month, clawback any transactions that did not convert into opportunities.

Example of a Sales Compensation Plan for Account Executives


  • Model: Goal-setting for a business case
  • $900,000 in revenue based on 30 transactions
  • $30,000 is the average contract value.
  • Compensation: $80,000 basic + $80,000 variable for a Jr. AE.
  • Fully boosted lifecycle

Model: $80,000 in variable compensation must generate $900,000 in 30 transactions with a $30k ACV.

  • Linear model: $900,000 in 30 transactions vs. $80,000 in pay = 8.8% of every sale per month, ideal for company at 2-3 deals per month with a 2-stage (SDR/AE) based sales organization.
  • Accelerated model: Encourages people to close more towards the conclusion of the season.
    • On the first $500,000, the fee is 6.4 percent ($32,000).
    • 12 percent commission on $500,000 – 900,000 ($48,000 commission)
    • Over $900,000, you’ll get a 15% discount (upside)

*Requires that the commission season be matched to the desired purchasing behavior. Schools/districts, for example, purchase from March to July, the federal government from August to October, enterprise from November to December, and retail from March to July.

  • Business model:
  • Size of the transaction: To motivate a team to sell more goods and raise the price, use the following strategy:
    • 5% on deals < $20,000k, 10% >$20,000,  15% on deals over $30,000
  • Market: It’s a great way to break into new markets:
    • 7% will go to California schools, while 10% will go to Colorado schools.
  • Product: Very successful in driving new product sales:
    • 5% on the basic platform, 8% on the add-on services X, and 15% on the new platform services

Comp-Plan-for-an-Account-Executive Table 11 is an example of a compensation plan for an account executive.

SaaS Compensation Model 8

Table 12: Account Executive Payout Example, Accelerated Model + Business Model

This is part of the Winning By Design Blueprint Series, in which we look at every aspect of a SaaS sales organization and provide practical recommendations.


Sales compensation plans are a powerful way to help employees recognize and satisfy their financial needs. A sales compensation plan provides a strategy and structure for how individual salespeople are compensated. As a salesperson, you never know when you will be working for a company that does not have a compensation plan. As such, you need to be prepared for that situation. That means getting to know the compensation plan as well as the company’s use of it. If you are a salesperson who is given a sales compensation plan, you need to know what it is and what you are expected to do with it.. Read more about compensation plan template and let us know what you think.

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The sales compensation plan is a way for the company to reward employees who have helped increase the companys revenue. There are three different methods of sales compensation plans, which are commission-based, fixed salary, and variable salary.

Commission-Based: This type of sales compensation plan pays an employee a percentage of their total commissions earned from selling products or services. Fixed Salary: This type of sales compensation plan pays an employee a set amount per month regardless of how much they sell”}}]}

Frequently Asked Questions

How do I create a sales compensation plan?

A sales compensation plan is a way to incentivize your employees and team members to sell more. It can be done by offering bonuses or discounts for reaching certain sales goals, or even giving out prizes like gift cards or cash.

What is sales compensation plan?

Sales compensation plan is a type of commission plan that can be used to incentivize sales.

What is sales compensation plan explain the methods of sales compensation plan?

The sales compensation plan is a way for the company to reward employees who have helped increase the companys revenue. There are three different methods of sales compensation plans, which are commission-based, fixed salary, and variable salary. Commission-Based: This type of sales compensation plan pays an employee a percentage of their total commissions earned from selling products or services. Fixed Salary: This type of sales compensation plan pays an employee a set amount per month regardless of how much they sell

Related Tags

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  • sales compensation plans
  • sales compensation
  • sales compensation models