How to motivate your sales teams with sales compensation plans that work

Designing commission structures shouldn’t feel like solving a Rubik’s Cube. Yet, for many businesses, it does. On paper, it’s just math. However, small design decisions can have a surprising influence on sales behavior, deal quality, and revenue predictability. For example, variable pay tied to revenue looks straightforward until you factor in renewals, customer churn, and non-standard discounts.

​When designed strategically, your sales compensation plan becomes one of the most powerful levers in your business for influencing sales rep behavior, reducing customer churn, and improving cost of sales.

​This article explores the importance of robust sales compensation and commission plans used to drive growth, protect profit margins, and improve forecast accuracy.

What are sales compensation plans?

Sales compensation is a mix of salary and rewards that employers offer their sales personnel based on job performance. A sales compensation plan details the specifics of this mix, including how payouts are calculated.

​The two main components of a sales compensation plan are:

• Fixed compensation is the base salary and possibly equity if included as part of the compensation plan.
• Variable compensation is primarily the commission, which is a percentage-based payout based on a sales quota. Variable compensation may also include bonuses for reaching certain targets, other performance-linked incentives, and equity, depending on the specifics of the compensation plan.

Sales compensation plans are typically based on specific goals, such as the number of deals closed and revenue targets achieved. The purpose of a sales compensation plan is to reward the sales team’s performance, encourage the right behaviors, support revenue goals, and create predictability in financial planning.

What are on-target earnings?

On-target earnings (OTE) represent the total compensation a sales rep can expect to earn annually if they meet 100% of their quota and other performance targets.

For example, if the base salary is $80,000, the commission potential is $60,000, then the expected OTE would be $140,000. This breakdown reflects realistic mid-market SaaS comp structures, where commission is typically 40–50% of OTE.

OTE is used extensively by SaaS companies as a planning benchmark to model compensation costs and expected revenue output. Mostly, OTE is used to:

• Inform quota setting
• Structure variable pay within compensation plans
• Determine whether compensation aligns with market norms and financial goals for specific roles.

In addition to OTE, sales leaders can use the Q factor to help ensure they’re setting optimal quotas and to monitor sales efficiency. Q-factor compares revenue generated (typically ARR) to total sales compensation (OTE).

​For example, a Q factor of 2 means a sales rep needs to generate $2 in revenue for every $1 paid in compensation. Using this metric, leaders can answer questions such as:

• Are the quarterly quotas realistic? 
• Are the highest-earning salespeople delivering a high ROI?
• Is the way we’re thinking about redesigning compensation plans going to be cost-efficient?

Why do sales compensation plans matter?

SaaS companies place a considerable amount of attention on compensation plans because of the potential that each sale has for long-term growth—the hallmark of the SaaS industry (and any other type of business based on a recurring revenue model).

​Your sales reps aren’t closing one-time deals. Ideally, they’re closing deals with minimal risk of churn and the highest potential for long term revenue growth through renewals and expansion.  

​As a result, sales commissions and incentives directly influence pipeline quality, deal structure, and long-term revenue retention in SaaS businesses. That means you need a sales compensation strategy that encourages behaviors and outcomes that help sustain business and employee growth, instead of rewarding only sales volume. Let’s see how.

Impact of sales compensation and commission plans on the business

Sales commissions influence more than just payouts—they can impact a company’s forecasting, financial performance, and hiring strategy. For example:

• Well-designed compensation plans not only influence revenue growth but also strike a good balance between margins and commissions, improving forecasting accuracy.
• They also influence sales capacity planning, helping organizations better predict and model revenue growth based on the total number of sales reps they’ll need to build and support the pipeline.
• Profitability-based commissions ensure reps prioritize deals that support customer lifetime value.
• Commissions tied to realistic quotas and metrics like annual recurring revenue (ARR) support sustainable expansion.
• Setting quotas and payout thresholds ensures reps stay focused on deals that justify the customer acquisition costs.
• Sales compensation plans directly impact employee attrition. A well-designed plan outlining fair, high-earning potential helps attract and retain experienced sales talent, while a poorly designed one with muddled commissions and incentives leads to high turnover.

Impact of sales compensation plans on employee performance and attrition

Unclear or inconsistent pay structures can lead to low morale and higher attrition of your sales team. No matter how well you plan your sales capacity, if your sales compensation plan is not competitive based on market benchmarks, you’ll struggle to keep the best sales reps, and those that do stick around will always be looking for a better opportunity with another company.

​The negative influence of a poorly designed compensation plan has a direct impact on your bottom line in terms of low morale, which can impact your team’s overall performance and attrition. With every sales rep you lose, you not only incur the added cost of hiring and onboarding a new employee, but you also lose productive sales capacity while looking for a suitably skilled replacement and during the ramp-up time required for the new sales rep to achieve quota.

​Conversely, when motivated with a clear, well-rounded, and competitive compensation plan, it aligns sales behavior with business goals, by:

• Guiding sales reps on exactly where to focus their efforts
• Providing a direct link between effort and earnings that drives better ownership of the pipeline and outcomes
• Maintaining the right balance of fixed and variable pay, motivating both steady performers and high achievers

It’s important to bear in mind that while commissions strongly influence sales behavior positively, they can be misinterpreted and misused.​

Sales reps will always aim to maximize their earnings. The key challenge in sales compensation planning isn’t stopping them from doing so, but recognizing when their actions start to hurt deal quality, lower margins, or disrupt financial forecasts. An effective sales compensation strategy will anticipate these behaviors and include safeguards, including clawback clauses, that align personal incentives with company goals, as well as promote the right behaviors.

Common sales commission structures in SaaS

In B2B SaaS, sales compensation combines a guaranteed base salary and a commission, plus or minus additional incentives. ​

Commission is the main component of variable pay in sales compensation plans, built in to motivate sales reps to achieve their quotas and generate revenue. While commissions can be structured in several different ways, they’re always based on quota attainment and usually include a cliff with both the commission and cliff expressed as a percentage.

In this section, we’ll explore the three most common types of B2B SaaS commission structures. But first, we need to explain the concept of cliffs and how they apply to commissions.

What are “cliffs” and how do they impact commissions?

In SaaS compensation plans, cliffs—sometimes referred to as commission floors—set a minimum performance threshold (e.g., 70–80% of quota) that sales reps must hit before receiving commission payouts.

​Below the cliff, the payout is zero; above it, commissions grow—often at a standard or accelerated rate, as defined by the sales compensation plan.

Most SaaS sales compensation plans include cliffs. Those who don’t risk rewarding underperformance. Cliffs protect the company’s bottom line by preventing payouts for low-margin, mediocre deals or those with a high churn risk, and help to better control the variable pay component of sales compensation.  

1. Linear commission

With a linear sales commission structure, payouts increase at a fixed rate as the rep makes more sales. ​In this model, the commission is calculated as a straight percentage of sales, starting from a set point, usually after reaching a cliff (i.e., minimum quota). Once the rep surpasses that threshold, every additional dollar sold earns the same commission rate, meaning the commission increases in direct proportion to sales.

Here’s how that works for a sales rep who sells $1.2M in revenue against a $1M quota with a linear 10% commission:

• $1,000,000 (100% of the quota) × 10% = $100,000
• $200,000 (the amount above quota) × 10% = $20,000
• Total commission = $120,000

Linear commission plans work well for smaller SaaS sales teams and in situations where the product offering is more streamlined—the focus is on a core SaaS platform with a basic subscription model or standardized subscription pricing tiers. In these situations, sales cycles are often shorter and deals close more predictably than with more complex or customized  solutions or in enterprise markets where sales typically require extensive negotiation.

2. Tiered commission

With a tiered sales commission structure, payout rates increase as reps advance through defined sales attainment tiers.  Higher tiers mean higher payouts. Note that at each tier, only the incremental revenue gets the higher rate.

For example, let’s calculate a tiered commission payout for a sales rep that closes $1.2M in revenue against a $1M quota using the following quota attainment levels (80%, 100% and 120%) and their associated commission rates (5%, 8% and 12%, respectively):

• Tier 1 — $800,000 (80% of quota) × 5% (Tier 1 commission rate) = $40,000
• Tier 2 — $200,000 (100% of quota) × 8% (Tier 2 commission rate) = $16,000
• Tier 3 — $200,000 (revenue) × 12% (Tier 3 commission rate) = $24,000
• Total commission = $80,000

A tiered sales rep commission structure can be very effective in established SaaS companies where the complexity of the sales process demands more sophisticated commission structures. This is often the case where single-product offerings involve diverse subscription tiers, where there are multiple products that can be bundled into a subscription, and in enterprise sales.

​In these situations, deal sizes and margins are usually high enough to support higher commission payouts within a tiered commission structure. Higher earning potential is critical to retaining top sales talent—reps with the skills to navigate longer sales cycles common in enterprise SaaS sales and to manage deals with complex pricing, multiple products, and/or multiple stakeholders. Because they offer significantly higher earning potential, tiered commissions keep reps motivated across all levels of quota achievement, rewarding both steady progress and exceptional performance.

3. Accelerated commission

With accelerated commissions, reps earn a “base rate” commission on sales meeting the quota, plus a higher percentage commission for revenue earned above the quota. The base rate is the commission rate used as the starting point for calculations before any accelerators, decelerators, or multipliers are applied.

Let’s calculate an accelerated commission payout for a sales rep that closes $1.2M in revenue against a $1M quota. In this example, the rep earns 10% base rate commission on all revenue up to the quota and 15% on any revenue above it:

• The first $1,000,000 (100% of the quota) × 10% = $100,000
• The remaining $200,000 (the amount above quota) × 15% = $30,000
• Total commission = $130,000

The effectiveness of accelerated commission structures stems from their ability to keep reps motivated after they achieve quota. They work particularly well for businesses operating in multiple market segments (e.g., SMB to enterprise) where deal values can range dramatically. 

This is because reps selling across market segments face a strategic choice: they can hit quota with several smaller wins, or focus on bigger wins that require fewer deals to reach their quota. The problem is that those bigger wins (e.g., enterprise sales) can take a lot more time and effort to win.

With an accelerated commission, reps are incentivized by the higher commission rates on over-quota deals to aggressively pursue additional opportunities throughout the sales cycle, especially during end-of-period pushes when they’re close to reaching the next tier. 

Considerations when designing tiered and accelerated commission structures

Tiered and accelerated commission structures are often described as offering an “unlimited upside” for sellers, which could be interpreted as unlimited commissions. On the surface, this may feel like a risky move for SaaS businesses considering them.

However, while they usually involve significantly higher payouts than a linear commission structure, under the right circumstances, tiered and accelerated commission structures also offer some upsides for the business, too:

• From an ROI perspective, over-quota deals often represent pure incremental revenue that wouldn't exist without the extra financial incentive, making the higher commission rates economically justifiable.
• The economics of retention: When you consider the costs associated with attrition on your sales team, Higher commission payouts might make more sense.
• SaaS companies with a strong gross margin (75% or higher) often have more room to absorb higher commission costs while still maintaining healthy unit economics.

If you decide to implement a tiered or accelerated commission structure, consider building in one or more of the following limits:

• Commission caps that limit the total commission payable regardless of performance.
• Review thresholds, which define certain over-quota attainment levels that trigger management review and potential plan adjustments.
• Automatic quota adjustments that define an over-quota percentage at which a higher quota automatically kicks in for the next period. 

It’s also worth noting that both of these commission structures require robust sales forecasting and quota-setting processes.

Unlike linear commissions that are more forgiving (small sales forecasting errors have proportional impacts) with tiered and accelerated commissions, those small errors can result in significant and unexpected commission expenses.

Their relative risks differ. With a tiered structure, it’s only the incremental revenue that would get inflated, whereas with an accelerated commission, the impact of an error would apply across all over-quota revenue. 

Additional incentives beyond commissions

While commission is always a part of sales compensation in SaaS, incentives are another component of variable compensation that you can add to your commission structure to achieve specific objectives.

​While there are many types of non-monetary incentives (e.g., gift cards, trips, or special experiences), this section focuses on financial sales incentive plan examples. We’ll explore three of the most common types here:

• Bonuses
• Sales performance incentive funds (SPIFFs)
• Accelerators and decelerators

How bonuses work with commissions

In SaaS sales, a bonus is typically a performance-based payment that rewards achievements that help the company reach its broader strategic goals, such as:

• Landing strategic or high-value customer logos
• Achieving company-wide revenue goals or goals for specific teams or regions

Bonuses are designed to encourage behaviors that drive long-term business success rather than just short-term revenue generation. This makes them particularly valuable for encouraging reps to pursue high-value prospects and maintain disciplined sales processes.

Sales performance incentive funds (SPIFFs)

SPIFFs are short-term incentives that sales reps get on top of their base salary and commission for achieving certain goals in addition to their sales quotas.

​SPIFFs are tactical behavior drivers focused on immediate business needs and designed to motivate sales reps towards specific outcomes, for example, pushing products, moving deals faster, or reducing the practice of discounting.

​A word of caution here…it’s important to carefully evaluate all the potential consequences of the incentive you’re considering. While SPIFFs can motivate sales reps to achieve short-term outcomes, they can sometimes become perverse incentives, resulting in unintended consequences that negatively impact your business’s financial health.

The role of accelerators and decelerators in sales compensation plans

Accelerators (rewards) incentivize overperformance by increasing a rep’s commission rate as they exceed their sales targets, while decelerators (penalties) decrease commission rates when sales reps underperform or do not meet their targets.

​Accelerators and decelerators are both incentives and are worked into the structure of the compensation plan as secondary goals within the commission structure. Let’s take a closer look at how each one works.

Accelerators

For example, let’s say a couple of your reps sign multi-year deals, and you want to motivate them and the rest of the team to sign more of these kinds of deals. Because you know that multi-year deals increase LTV:CAC, you can afford to offer some additional incentive without affecting your margins.

Absent this accelerator, there’s no incentive for your reps to prioritize multi-year deals because they’re getting paid the same commission regardless of the length of the contract.

However, as soon as you layer in an extra 5% commission for multi-year contracts, their focus will change, and they’ll work harder to win those deals.  

​Accelerators are powerful motivators, which is one of the reasons why accelerated commission plans—one of the three main types of commission structures described above—is so widely used in SaaS sales today.

Decelerators

Now, let’s look at an example of a decelerator. Some of your reps are consistently offering deep discounts to close deals, which not only erodes your gross margin but also creates an expectation for lower pricing with discounts with prospects. Given this, you need to discourage this behavior while still allowing pricing flexibility for strategic situations.

Right now, your reps have every reason to offer deep discounts because they get paid the same commission regardless of the final deal price, and discounting often makes the deal easier to win. In this case, implementing a commission reduction—say, cutting commission rates by 25% on deals discounted more than 20% below list price—your sales reps will change their approach to pricing negotiations, and they'll work harder to justify full value rather than default to discounting.

​On the surface, decelerators may seem like a disincentive as opposed to an incentive. However, by creating negative financial consequences for underperformance, much like accelerators, decelerators motivate better performance—in this case, by encouraging sales reps to change behaviors that are negatively impacting the business.

​Accelerators and decelerators are complementary incentives. Building them into your commission structure can improve motivation across all performance levels:

• Low performers feel pressure to improve.
• Average performers are incentivized to reach their quotas.
• High performers are motivated to maximize earnings.

Doing so can also make the system more equitable, with financial consequences for both underperformance and overperformance.

Sales compensation planning that scales with your SaaS business

A well-designed sales compensation plan is one with a commission structure that balances performance, profitability, and predictability. But as business models evolve, so do the variables in the sales compensation model: new pricing models, shifting quotas, expanding teams, and increasing financial complexity.

Alignment between finance and sales teams is critical to achieving growth. Achieving alignment in sales compensation planning at scale requires more than static spreadsheets or ad-hoc models. It requires real-time data, flexible modeling, and full visibility across finance and revenue operations.

Sales forecasting tools and cash flow forecasting software like those built into Drivetrain give business leaders full visibility into how compensation and commission structures impact financial health.

​With over 800 integrations and a comprehensive suite of financial planning and analysis features, Drivetrain empowers sales leaders and finance teams to align compensation with growth, profitability, and planning cycles, through:

• Scenario planning and forecasting: Enables business leaders to see how changes in commission plans affect revenue, margins, and compensation costs.
• Compensation automation: Eliminates manual errors, handles complex commission calculations, and integrates data from CRM, HRIS, and finance systems for accurate, real-time payouts.
• Capacity planning: Finance leaders can link sales capacity directly to hiring plans and revenue forecasts. Drivetrain’s user-friendly platform helps align headcount-related expenses and growth with financial goals through integrated workforce planning.
• Territory planning: Helps sales leaders divide larger regions into smaller, more manageable segments, ensuring optimization of sales efforts, balancing workloads, and maximizing profitability.
• Real-time transparency: Drivetrain gives reps visibility into their own performance against quotas, which reinforces their trust and motivation. For finance teams, real-time insights help spot unintended outcomes and improve forecasting accuracy.
• Compensation alignment with budgeting cycles: On Drivetrain’s platform, sales leaders can align compensation plans with financial forecasts, growth targets, and budgeting cycles. 

Learn more about how Drivetrain can help you build a better sales compensation plan—one that drives better sales performance and financial growth.