Sales compensation plans determine where every rep on your team focuses their time. Design them right and reps drive the behaviors that close deals. Design them wrong and you accidentally pay people to ignore renewals, sandbag pipeline, or sell unprofitable products. This guide covers the 7 plan types, real examples by role, the design framework that makes them work, and a free template.
What a sales compensation plan actually does
A comp plan converts company strategy into rep behavior. If the strategy says "grow ACV," the plan should accelerate higher ACV deals. If the strategy says "drive renewals," the plan should pay reps on renewals. Most plans drift away from strategy over time because nobody redesigns them annually.
The 7 types of sales compensation plans
Plans split into 7 types: base plus commission, draw against commission, salary only, commission only, profit margin commission, tiered commission, and gross margin commission. Each type fits a different role and stage.
Type 1: Base salary plus commission
Fixed base ($50K to $150K) plus variable commission (50 to 100 percent of base at quota). Most common for AEs. Pros: predictable for reps, scales with revenue. Cons: requires accurate quota setting.
Type 2: Draw against commission
Reps receive a "draw" (advance) each pay period. Earned commission pays back the draw. If commission falls short, rep owes the difference (recoverable) or company eats it (non recoverable). Pros: smooths variable income for new reps. Cons: complex bookkeeping.
Type 3: Salary only
Fixed salary, no variable. Used for SDR managers in some orgs, customer success at scale ups, and some inbound reps. Pros: predictable cost, simple. Cons: limited motivation for top performance.
Type 4: Commission only
No base, full commission. Used for channel partners, agency models, and high earning enterprise reps. Pros: zero fixed cost, unlimited upside for top reps. Cons: high turnover, hard to attract talent.
Type 5: Profit margin commission
Commission paid as a percent of profit margin, not revenue. Used in services, distribution, and complex products. Pros: aligns reps with profitability. Cons: requires accurate margin data per deal.
Type 6: Tiered commission
Commission rate increases as rep crosses quota tiers (e.g., 5 percent up to quota, 10 percent at 100 to 150 percent of quota, 15 percent above 150). Pros: accelerates top performers. Cons: cliff effects at tier boundaries.
Type 7: Gross margin commission with bonuses
Hybrid of margin commission plus bonus for specific behaviors (new logos, multi year deals, strategic product mix). Pros: targets specific company priorities. Cons: complex plan documents.
Examples by role
SDR: salary $50K to $65K plus $20K to $35K variable on meetings or pipeline. Mid market AE: $80K base plus $80K variable, accelerators above quota. Enterprise AE: $130K base plus $130K variable, multi year and new logo bonuses. CSM: $80K base plus $30K to $50K variable on retention and expansion. Sales Engineer: $120K base plus $30K to $60K variable tied to AE attainment.
How to design a comp plan in 8 steps
Step 1: align with company strategy. Step 2: define roles and behaviors to reward. Step 3: pick the plan type for each role. Step 4: set quotas (top down meets bottom up). Step 5: model OTE (on target earnings) at 50, 75, 100, 150 percent attainment. Step 6: stress test cost (what does payroll cost if everyone hits 120 percent?). Step 7: document plan in writing and get rep signatures. Step 8: review quarterly, redesign annually.
Common comp plan mistakes
Too many SPIFs and accelerators (reps cannot decode the plan), comp plan changes mid year (kills trust), quotas set without market data, no measurement of plan vs behavior alignment, and finance owning comp design instead of sales leadership.
Free comp plan template (download)
[Insert link to template: Excel sheet with OTE calculator, quota assumptions, payout schedule]
