A commission structure is the complete set of rules, rates, and mechanisms that define how salespeople's commission is calculated and paid. It describes what triggers commission, how much is paid, and under what conditions.
A well-designed commission structure aligns salespeople's incentives with the company's strategic goals and ensures the right behaviors are rewarded.
The percentage or fixed rate paid per sale:
What commission is calculated on:
Minimum sales before commission activates:
Increased rates for overperformance:
Reduced rates for underperformance:
Same percentage rate regardless of volume. Simple, easy to understand.
Example: 10% of all revenue
Different rates at different levels:
Higher rates when quota is reached:
Commission based on margin, not revenue:
Example: 20% of gross margin
Base rate multiplied by performance factor:
Formula: Commission = Sales × Base Rate × Attainment Multiplier
Accelerator structure:
Scenario: Salesperson closes $520,000 (130% attainment)
| Level | Sales | Rate | Commission |
|---|---|---|---|
| 0-100% | $400,000 | 10% | $40,000 |
| 100-120% | $80,000 | 15% | $12,000 |
| 120-130% | $40,000 | 20% | $8,000 |
| Total | $60,000 | ||
What do you want to achieve? Growth, profitability, new markets?
Long cycles often require higher commissions to compensate for uncertainty.
High-margin products can support higher commission rates.
Competitive markets may require higher commission to attract talent.
Hunters vs. farmers, AE vs. SDR - different roles require different structures.
Salespeople should be able to calculate their commission mentally. Max 3-4 components.
Commission structure should drive the behaviors the company wants.
Run simulations with historical data to avoid surprises.
Document the structure in writing and review it with all salespeople.
Review the structure at least annually. Is it driving desired results?
With Prowi, you can design, model, and implement complex commission structures without Excel nightmares. Our platform handles accelerators, decelerators, splits, and much more.
Book a demo today and see how Prowi can simplify your commission administration.