How to Create a Sales Commission Plan (Structures, Examples, and Template)

How do you create a sales commission plan?

You create a sales commission plan by deciding what result you want to reward, choosing a structure that pays for that result, setting a rate you can afford at your margins, writing clear rules for when commission is earned and paid, and testing the plan against your last few months of real deals before anyone signs it.

My strong opinion: a simple plan beats a clever one every time. If a salesperson cannot work out what a deal will pay them while they are still on the call, the plan is not motivating them. It is just confusing them.

What goes into a sales commission plan

• Who the plan covers. Name the roles, so there is no question about who is eligible.
• What commission is paid on. Revenue, gross margin, new customers, or renewals. Pick one main measure.
• The rate or rates. A percentage, a flat amount per deal, or tiers.
• When commission is earned. At signature, at first payment, or after the customer has paid in full.
• When commission is paid. Monthly, the month after the deal closes, or quarterly.
• Refunds and cancellations. Whether commission is reduced or paid back if a customer refunds or cancels early.
• Split deals. How commission is shared when two people work the same deal.
• Changes and leaving. How you will change the plan, how much notice you give, and what happens to unpaid commission if someone leaves.

Common sales commission structures

If you are still deciding between salary and commission for a first hire, How to Hire a Salesperson for a Small Business (Steps, Interview Questions, and Pay) covers that decision. This post picks up once you know you will pay some commission.

How to set a commission rate you can afford

1. Start from your margin, not from what you have heard others pay. Work out what a typical deal leaves you after delivery costs.
2. Decide how much of that margin you will share. Whatever is left still has to pay for marketing, overheads, and profit.
3. Work out what a good month pays the salesperson. Multiply the rate by a realistic monthly target. If that number is not worth chasing, the rate is too low.
4. Check a bad month too. Make sure total pay still makes sense for them and for you when sales are slow.
5. Compare against what you expect them to sell. A plan should pay well when they hit the target you set with How to Set Sales Goals (A Simple Framework With Examples), and pay more when they beat it.

A worked commission plan example

Here is an illustrative example, not a benchmark. A small agency pays a salesperson a base salary plus a tiered commission on collected revenue each month.

If the salesperson brings in $45,000 of collected revenue in a month, they earn 5 percent of the first $20,000, which is $1,000, plus 8 percent of the next $20,000, which is $1,600, plus 10 percent of the last $5,000, which is $500. Total commission is $3,100 on top of the base salary. The higher rate only applies to the portion above each line, so nobody loses money by crossing a tier.

Run your own numbers the same way before you commit to a rate. Plug in your last few months of real deals and see what each person would have earned and what you would have kept.

Sales commission plan template

Keep the written plan to one page. Fill in each line, then have the salesperson read it and ask questions before they sign.

1. Plan period: the dates this plan covers.
2. Eligible roles: who is on this plan.
3. Base pay: the fixed amount, if any.
4. Commission measure: what commission is calculated on, such as collected revenue or gross margin.
5. Rates and tiers: the exact percentages or amounts, with a worked example.
6. Earned when: the event that makes commission earned.
7. Paid when: the pay date for earned commission.
8. Refunds and cancellations: how commission is adjusted.
9. Split deals: how shared deals are divided.
10. Changes and departures: notice period for changes and treatment of commission when someone leaves.
11. Signatures: the business owner and the salesperson, with dates, and a copy for each.

Put a copy of the signed plan in your sales playbook so everyone works from the same rules. How to Create a Sales Playbook (Template and Steps for Small Businesses) shows where it fits.

Put the plan in writing

A written plan protects both sides, and in some places it is required. In California, for example, when an employee working in the state is paid commissions, the contract must be in writing, must explain how commissions are calculated and paid, and the employer must give the employee a signed copy and get a signed receipt back.

Sales commission plan mistakes to avoid

• Rules that live in someone's head instead of on paper.
• Paying on signed deals that never get paid.
• So many tiers, bonuses, and exceptions that nobody can calculate their own pay.
• Changing the plan in the middle of a period without notice.
• Rewarding revenue when discounting is eating your margin.
• Paying late or getting the math wrong. Nothing kills trust faster than a commission check that does not match what the salesperson expected.
• Never checking the plan against results. Review it with your numbers from Sales KPIs for Small Business: What to Track and How to Calculate Each One.

How to model your commission plan with Claude

Claude is useful for stress-testing a plan before anyone signs it. Use the Claude desktop app with a spreadsheet export of your recent deals.

1. Export your last few months of closed deals with the date, value, amount collected, delivery cost, and who closed each one.
2. Paste in your draft plan and ask Claude to calculate what each salesperson would have earned under it, deal by deal, and what the business would have kept.
3. Ask it to try two or three alternative rates or structures and compare the results side by side.
4. Ask it to find the edge cases your plan does not cover, such as refunds, partial payments, and shared deals, and to list them instead of guessing.
5. Check the math yourself on a few deals, then update the written plan.