How to design your first sales commission plan

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At early-stage B2B startups, hiring great sales talent can be game-changing, and getting the commission plan right from the start is just as important as hiring the right person.

Designing a sales commission plan isn’t a finance exercise; it's a go-to-market strategy. It’s essential to design a commission plan that attracts, motivates and retains top tech sales talent, and protects your margin. If you get it wrong, you’ll pay for the bad behaviour or burn cash.

This playbook gives you a simple way to launch a first plan you can live with for 12 months, then iterate.

What good looks like for a first-time plan

  • Clear pay mix that candidates understand.
  • A simple structure aligned to one or two outcomes, not ten.
  • Transparent rules. No “manager discretion” clauses.
  • Predictable cost at different performance levels.

Most early teams win with a base-plus-commission plan, sometimes with a ramp draw for months 1-3. A typical first commission plan in SaaS is a pay mix of 50/50 or 60/40 OTE splits, which candidates expect.

Step 1: Set your pay mix and OTE that the market will accept

Pick a mix you can actually afford. A 50/50 or 60/40 split keeps things standard. Don’t invent a bespoke mix unless there’s a reason. Example OTEs:

  • SDR/BDR: £40k base + £15k variable = £55k OTE
  • AE: £50k base + £50k variable = £100k OTE

Document the on-target definition and tie it to one clear quota for each role.

Step 2: Choose a structure that matches your motion

There’s no single correct answer. Pick the simplest model that pays for your priority outcome. Common options and where they fit:

Revenue commission
A flat % of booked revenue. Best for short cycles and price-stable products. Easy to explain, easy to audit. Risk: reps discount to win.

Gross-margin model
% of margin after delivery costs. This one is good for services.

Tiered commission
Rate increases after hitting thresholds. Good for motivating over-attainment and pushing quarter-end.

Recurring commission
Ongoing % on active subscriptions. Good for "farmer" roles or partner managers. Watch long-tail costs.

Commission advance
Temporary guarantee that advances future commission. Use for ramp or seasonality. Decide “recoverable” vs “non-recoverable” in writing.

If you’re unsure, start with base + revenue commission for AEs and activity/qualified-op + revenue credit for SDRs. This mirrors how most first-time plans are structured across guides and examples.

Step 3: Define the calculation in plain English and in a formula

For AEs on a revenue plan:

  • Commission rate: 10% of first-year revenue
  • Quota: £500k ARR per year
  • Timing: pay monthly on invoiced deals after signed order form
  • Cap: none
  • Example: £20k ARR deal at 10% = £2,000 commission

For SDRs:

  • £X per qualified opportunity accepted
  • Accelerator: +£Y per opportunity after the monthly target
  • Quality rule: opportunity must reach the stage of “Proposal Sent” within 30 days or clawed back

Make sure you document the formula and reuse it across examples. Don’t rely on verbal explanations.

Step 4: Write the rules that protect you

These are some non-negotiables for a clean first commission plan:

  • Payment trigger: Specify signed contract + invoice issued, or cash received. Choose one.
  • Eligibility window: Deals must be added to CRM before close. No back-dating.
  • Discount guardrail: Commission based on net revenue after discounts.
  • Refunds and clawbacks: Commission reverses on churn/refund within X days.
  • Territory and ownership: Tie to CRM account ownership at opportunity creation.
  • Quota relief rules: What happens when pricing changes, territories move, or a product is sunset?
  • Recoverable vs non-recoverable draws: Spell out repayment logic and timelines.

Step 5: Work a full example so Finance can budget

Assume one AE with £100k OTE, 50/50 mix, 10% commission rate, £500k ARR quota, quarterly accelerators at 120% and 150% attainment:

  • At 100% of quota (ARR £500k): variable £50k paid
  • At 120% (ARR £600k): first £500k at 10%, next £100k at 13% → £50k + £13k = £63k variable
  • At 60% (ARR £300k): £30k variable

Build the same table for SDRs. Forecast total comp at 60%, 100%, and 120% to see cost under- and over-attainment.

Step 6: Keep the plan length short and change controls strict

Run your first plan for 12 months. Changing mid-year destroys trust. If you must tweak, publish an addendum with a go-forward date only. Avoid retroactive changes.

Step 7: Document any potential issues to avoid issues later on

  • Multi-year contracts: Pay on first-year revenue only until cash profile stabilises.
  • Usage-based pricing: Bridge with milestone or ramped residuals if revenue lags bookings. Keep math simple.
  • Partnerships and split credits: Pre-define split rules and cap total credit.
  • Manager overrides: If you pay them, cap at a small % and define eligible deals.

Step 8: Make it legal

  • Written terms: Align your plan with employment contracts and variable pay clauses.
  • Deductions and clawbacks: Ensure they’re permitted under the contract and documented.

Common mistakes to avoid

  • Too many KPIs. Two at most for each role.
  • Hidden thresholds. If there’s a minimum target to hit before commission is earned, write the number. Don’t bury it.
  • Unclear discount policy. Sales reps will trade price for speed. Your plan will pay for it unless you stop it.
  • Complex spreadsheets. If your sales reps can’t easily check their commission on a payslip, you’ve lost credibility.

SDR specifics that keep pipelines honest

  • Definition of a qualified opportunity: Decide once. E.g.: ICP account, economic buyer identified, next step scheduled, and a budget path.
  • Age-out rule: If an SDR’s opportunity doesn’t progress to “Proposal Sent” in 30 days, claw back any commission paid next payroll.
  • Simple accelerator: After 12 accepted opportunities in the month, increase per-opp payout by 25% for the remainder of that month.
  • No partial credits: Either it’s accepted, or it isn’t.

How to communicate your commission plan:

  • One 2-page plan doc per role with numbers, examples, and FAQs.
  • One calculator that mirrors payroll logic.

Commission plan checklist

  • OTEs benchmarked and approved
  • Pay mix agreed per role (50/50 or 60/40 for now)
  • Structure chosen (start with revenue % for AEs)
  • Commission rate set and example deals written
  • Eligibility, clawbacks, and discount rules documented
  • Draw defined for ramp with recoverable vs non-recoverable spelt out
  • Calculator tested against three example payslips

Two examples:

Example 1: New logo AE (SaaS), revenue commission with tier

  • Pay mix: 50/50 on £100k OTE
  • Quota: £500k ARR
  • Rate: 8% until £500k, 12% after
  • Rule: pay on first-year revenue upon invoice; uncapped
  • Discount rule: rate applies to net revenue
  • Clawback: if the deal is cancelled within 90 days

Example 2: SDR, per opportunity + accelerator

  • Target: 12 accepted opportunities per month
  • Payout: £150 per accepted opportunity
  • Accelerator: £200 per opportunity after 12 in the month
  • Quality: opportunity must reach “Proposal Sent” within 30 days or £150 clawback

When to iterate

  • After 2 quarters, if targets are well below 70% or above 130% for most reps.
  • After major pricing changes.
  • If you add a new role that creates channel conflict.

In conclusion

Don’t try to be too clever. Product a standard, transparent plan that pays for one result you care about. Put the maths and the rules in writing. Make it easy to audit. Then measure, learn, and tighten.

If you'd like to talk through your commission plan with one of the team, use our Contact form to get in touch, and we'd be pleased to help.