A commission plan that reps understand and trust is one of the highest-leverage tools for revenue growth. A plan that confuses or frustrates reps creates churn.
The 5 Core Components
1. OTE and Split — Define total earnings at quota and the base/variable split. Most SaaS AE plans target 50/50 for mid-market and 60/40 for enterprise.
2. Quota — Annual quota should be 4–7× OTE for the business to maintain healthy unit economics. A $150k OTE rep needs a $600k–$1M ARR quota.
3. Payment Timing — Pay on booking (when contract is signed), on invoice, or on cash collection. Booking-based plans are simpler; cash-based plans protect against bad deals.
4. Accelerators — Tiered commission rates above 100% quota. Required to attract and retain top performers.
5. Clawbacks — Commission is returned if a customer churns within 90–180 days. Protects against sandbagging and misaligned incentives.
Common Mistakes
- Cap on earnings: Caps demotivate high performers — the best reps stop pushing once they hit the cap. Accelerators are better.
- Complex plan mechanics: If a rep can't calculate their own commission in their head, the plan is too complex.
- Frequent plan changes: Changing plan structure mid-year erodes trust. Make changes at the start of fiscal year only.