Top 10 Sales Commission Structures With Formulas and Examples

Choosing the right commission structure for your business can be a challenging task, especially with so many options to choose from. In this blog post, we'll explore 10 different sales commission structures, along with their formulas and examples, to help you determine which model is the best fit for your business.

1. Salary + commission

Probably one of the most common sales commission structures. A sales rep earns a $2,000 base salary and 5% on each sale. If they sell $10,000 worth of products, their commission will be $500, resulting in a total compensation of $2,500.

• Formula: Base Salary + (Sale Price × Commission Rate)

Pros:

• Stable income for agents, reducing the risk of burnout.
• Motivates agents with commissions while offering financial security.

Cons:

• Commission rates may be lower due to the salary.
• Business incurs higher costs upfront to pay the base salary.

2. Commission only

This structure is as simple as it gets: sales agents earn money only when they make a sale. There’s no base salary or bonus involved. 

If a sales rep sells a product worth $1,000 with a 10% commission rate, their commission will be $100.

• Formula: Sale Price × Commission Rate

Pros:

• Maximum motivation, as reps only earn when they sell.
• Cost-effective for businesses as no salary is paid unless a sale occurs.

Cons:

• High risk for sales reps, especially during slow periods, leading to high turnover.
• May result in a high-pressure environment.

3. Base salary + bonus

In this structure, employees receive a base salary and earn bonuses for achieving specific goals or milestones, such as hitting a specific sales volume.

An example is if a sales agent earns a $2,000 base salary, and they hit a $10,000 sales goal. They receive a $1,000 bonus, bringing their total compensation to $3,000.

• Formula: Salary + Bonus

Pros:

• Easy to manage and predictable budgeting.
• Helps keep agents motivated to meet specific targets without constantly tracking sales.

Cons:

• Agents may lose motivation after earning their bonus.
• Lack of ongoing incentive can lead to slower growth in sales.

4. Tiered commission

With a tiered commission model, agents earn higher commissions as they reach higher sales thresholds. For example, they might earn 5% on the first $10,000 in sales, 7% on the next $10,000, and 10% on sales beyond that.

• Formula: Tier 1 Commission = Sale Price × Commission Rate 

Tier 2 Commission = Sale Price × Higher Commission Rate

Pros:

• Encourages agents to sell more by offering increasing commission rates.
• Suitable for high-performance teams.

Cons:

• Can lead to fluctuating payroll costs.
• Requires effective tracking and administration.

5. Revenue share commission

Under this structure, sales reps earn a commission based on the revenue generated from sales. As an example, think if a sales rep brings in $50,000 in revenue with a 5% commission rate. The agent earns $2,500 in commission.

• Formula: Revenue Generated × Commission Rate

Pros:

• Simplified formula that’s easy to understand.
• Motivates agents to increase overall revenue, not just the number of sales.

Cons:

• Can be expensive for businesses with tight margins.
• Might not incentivize agents to prioritize high-value sales.

6. Gross margin commission

Gross margin commission is calculated from the profit earned on a sale. This means salespeople are incentivized to sell products with better margins rather than just focusing on high-volume sales.

Imagine if a sales agent sells a product for $5,000. The cost to make the product is $2,000, resulting in a gross margin of $3,000. If the commission rate is 10%, the agent earns $300.

• Formula: Gross Profit from Sale × Commission Rate

Pros:

• Aligns sales incentives with company profitability.
• Encourages agents to focus on high-margin products.

Cons:

• Can discourage offering discounts or negotiating prices.
• More complicated to track than simple sales commission models.

7. Flat-rate commission

In this sales commission structure, sales reps earn a fixed amount for each sale made, regardless of the sale value. For example, a rep might receive $200 for every product they sell, whether it’s worth $1,000 or $5,000.

• Formula: Fixed Amount per Sale

Pros:

• Easy to implement and manage.
• Predictable costs for the company.

Cons:

• May not fully incentivize reps to close larger deals.
• Can lead to complacency if reps know they will receive the same amount for any sale.

8. Commission + profit share

The commission + profit share model is a hybrid that incentivizes reps both for the direct sales they bring in and for the profitability of the deals. Sales reps earn a commission on the sale and a percentage of the company’s profits from those sales.

• Formula: Sale Price × Commission Rate

Pros:

• Combines performance-based rewards with company-wide success.
• Motivates agents to contribute to company growth and profitability.

Cons:

• Requires good tracking of both sales and profit.
• Complex for both the company and agents to manage.

9. Spiff commission

A spiff commission is a one-time incentive typically given for specific actions like completing a sale, meeting a quota, or selling a new product. 

• Formula: Bonus for Completing Specific Tasks

Pros:

• Simple, quick rewards for specific actions.
• Effective in motivating agents for short-term goals.

Cons:

• Might create unhealthy competition if not balanced with long-term incentives.
• Can lead to distractions if too many tasks are incentivized.

10. Commission on renewals

This is a more specific sales commission structure. If your business is subscription-based, this structure can be the one for you. Commission on renewals rewards agents for retaining customers over time.

It worlds like this: a sales rep sells a subscription service for $1,000 annually. After a year, the client renews, and the agent earns a 10% commission on the $1,000 renewal, resulting in a $100 commission.

• Formula: Renewal Revenue × Commission Rate

Pros:

• Encourages long-term relationships with clients.
• Ensures reps remain engaged with existing customers.

Cons:

• Renewal commissions can be lower than initial sales commissions.
• Requires good tracking and follow-up from reps.

Choosing the right sales commission structure for your business

Each sales commission structure serves a different purpose and can be tailored to match the unique goals of your business. SalesVista can help you calculate and manage commissions. Request a demo now!