Commission
kuh-MISH-un
The percentage of revenue a salesperson earns for closing a deal. The variable component of their compensation.
Commission is what a salesperson earns when they close a deal. It is usually a percentage of the deal's ARR or ACV. If the commission rate is 10% and the rep closes a $100k deal, they earn $10k in commission.
Commission structures range from simple to byzantine. Simple: flat 10% on all new business. Complex: 8% on new business, 4% on renewals, 12% on expansion, 2x accelerator above quota, 0.5x decelerator below 50% attainment, clawbacks if the customer churns within 90 days.
The commission plan drives behavior. If you pay more for new logos, reps hunt new logos and ignore existing customers. If you pay more for expansion, reps farm existing accounts and neglect prospecting. Design the plan to reward the behavior you want, then adjust when reality proves the plan wrong.
Examples
A simple commission plan.
10% commission on new business ARR. A rep who closes $1M in new ARR earns $100k in commission. Plus their $130k base. Total comp: $230k. Quota is $1M, OTE is $230k.
A tiered commission with accelerators.
0-100% of quota: 10% commission rate. 100-150% of quota: 15% rate. Above 150%: 20% rate. A rep who closes $1.5M on a $1M quota earns: $100k (first $1M at 10%) + $75k (next $500k at 15%) = $175k in commission.
Commission drives the wrong behavior.
The company pays 10% on new business and 0% on renewals. Reps focus entirely on new logos. Existing customers feel neglected. Churn rises from 8% to 15%. The company restructures the plan to include 4% on renewals and hires a customer success team.
In practice
Read more on the blog
Frequently asked questions
What is a typical SaaS commission rate?
8% to 12% on new business ARR is the most common range. Rates vary by deal type: new business pays more than renewals. Expansion is usually somewhere in between. Some plans use ACV instead of ARR, which changes the math for multi-year deals.
What are commission accelerators?
Higher commission rates that kick in once a rep exceeds 100% of quota. Common structure: 1.5x to 2x the base rate for revenue above quota. Accelerators reward top performers and incentivize reps to keep selling after they hit their number instead of sandbagging deals for next quarter.
Related terms
The total compensation a salesperson earns if they hit 100% of quota. Base salary plus full variable commission.
The revenue target assigned to a salesperson for a specific period. The number they must hit to earn full commission.
A short-term bonus paid to salespeople for specific behaviors or outcomes. A tactical incentive on top of standard commission.
The percentage of quota a salesperson or team actually achieved. The scorecard for sales performance.
The salesperson who owns the deal from qualified opportunity to signed contract. Carries a quota and earns commission on closed revenue.
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