Insights — Sales & Commercial Recruitment — 4 min read
What Is a Typical Sales Commission Structure? Options, Caps and Pitfalls
A commission structure is a set of incentives designed to align a salesperson's behaviour with the company's goals. Get it right, and you drive growth; get it wrong, and you might incentivise the wrong customers or low-margin deals.
In short
A typical B2B sales commission structure usually involves a base salary plus a variable component tied to performance. Common models include flat percentage on revenue, tiered accelerators that increase rewards as targets are exceeded, or margin-based commission to protect profitability. The choice depends on your sales cycle, margin profile, and whether you are prioritising market share or profit. Avoid capping commission, as this often leads to 'sandbagging' by top performers.
There is no single 'typical' commission structure that fits every B2B business. A software company with 90% gross margins will structure pay very differently to a construction materials distributor operating on 10%. The 'best' structure is simply the one that rewards the specific outcomes your business needs to grow.
For many business owners, the challenge is moving beyond a simple 'percent of sales' model to something that protects margins, encourages larger deals, and keeps high performers motivated year-round. Understanding the different models and their pitfalls is the first step to building a high-performing sales team.
Common Sales Commission Models
When designing your scheme, consider which of these models best aligns with your commercial objectives. Many businesses use a hybrid of these approaches.
- Flat Percentage (Revenue-Based): The simplest model. The salesperson earns a fixed percentage of every pound they bring in. Easy to calculate, but doesn't distinguish between high-margin and low-margin work.
- Tiered Commission (Accelerators): The percentage increases as the salesperson hits certain milestones (e.g., 2% on the first £500k, 4% on the next £500k). This motivates top performers to keep selling after they've hit their basic target.
- Gross Margin-Based: Commission is calculated as a percentage of the *profit* on the deal rather than the total revenue. This is vital for businesses where sales staff have the authority to negotiate prices or discounts.
- Quota-Based (Bonus): A fixed lump sum paid only when a specific target (quota) is met. Common in roles with long, complex sales cycles where individual deal values vary wildly.
- Team-Based: A portion of the commission is tied to the performance of the whole team or office. This encourages collaboration but can lead to resentment if one person feels they are 'carrying' the others.
Illustrative Worked Examples
These examples demonstrate how different structures impact both the salesperson's earnings and the company's costs. (Figures are illustrative only).
| Sales Volume | Commission Rate | Earnings |
|---|---|---|
| Up to £500,000 | 2% | £10,000 |
| £500,001 - £1,000,000 | 5% | £25,000 |
| Total at £1m Sales | - | £35,000 |
| Deal Revenue | Margin % | Margin Value | Comm. (10% of Margin) | Comm. as % of Rev |
|---|---|---|---|---|
| £100,000 | 30% | £30,000 | £3,000 | 3.0% |
| £100,000 (Discounted) | 15% | £15,000 | £1,500 | 1.5% |
Should Sales Commission Be Capped?
A 'cap' is a limit on the total commission a salesperson can earn. While it protects the company from paying out massive sums on 'bluebird' deals (unexpectedly large, easy wins), it is generally discouraged in B2B sales.
If a salesperson hits their cap in October, they have no financial incentive to close more business until January. They will often 'sandbag' — holding back deals until the new year — which hurts your cash flow and momentum. A better approach is to have a 'decelerator' (lower rate after a certain point) or a specific clause for 'windfall' deals that weren't the result of active selling.
Common Pitfalls to Avoid
- Clawbacks (The Unpleasant Surprise): Ensure your contract includes a clawback clause. If a customer doesn't pay their invoice or cancels within a short period, the commission already paid to the salesperson is deducted from future earnings.
- Paying on Invoice vs Cash: Many small businesses pay commission when the *invoice* is sent. Larger or more risk-averse businesses pay only when the *cash* hits the bank. The latter is safer for cash flow but can be frustrating for sales staff if your credit control is slow.
- Complex 'Gatekeepers': Avoid structures where a salesperson hits their sales target but doesn't get paid because of a 'gatekeeper' metric they don't control (e.g., company-wide EBITDA or another department's performance). This destroys motivation.
- The 'Draw' Trap: A 'draw' is an advance on future commission. If a salesperson doesn't sell enough to cover the draw, they end up owing the company money. This can lead to legal issues and high staff turnover.
Administrative Reality
Before you launch a complex tiered, margin-based, multi-product accelerator scheme, ask yourself: *Can I actually calculate this in 10 minutes?* If your reporting is manual or messy, a complex scheme will lead to errors, disputes, and a lack of trust. Start simple and add complexity only when you have the data to support it.
Recruiting a permanent sales or commercial hire?
Evans starts with the commercial requirement — what has to be sold, to whom, through which channel and against what target — and writes the role specification from that.
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