Only 21% of companies demonstrate sales incentive plan effectiveness and express satisfaction with their approach. In other words, nearly 80% of companies aren't successfully leveraging sales incentive programs to drive potential earnings, which is a staggering statement, especially considering how much organizations invest in motivating their sales teams.
The problem isn't a lack of effort; it's often a misalignment between compensation design and business strategy. Choosing the wrong plan or sticking with a one-size-fits-all model can result in missed quotas, poor morale, and turnover among top performers.
Compensation needs to be more than a paycheck—it should be a powerful tool that shapes behavior, aligns with company goals, and rewards the actions that move the business forward.
In this article, we'll break down seven proven types of sales compensation plans, explain when to use each, and help you build a strategy that drives results, along with the following:
At its core, a sales incentive plan is a structured compensation strategy designed to reward salespeople for achieving specific business goals. It aligns individual performance with company objectives, whether that's driving revenue, growing market share, improving margins, or expanding into new product lines.
A sales incentive plan is a behavioral design tool. Done right, it rewards the right people, for the right activities, at the right time. It should feel fair, motivating, and transparent while tightly aligning with your business strategy.
But for a sales incentive plan to truly be effective, it needs three key ingredients:
Let's break that down with real-world examples.
First, the business defines what it wants to achieve during the incentive period. For example:
These goals then inform how the incentive plan is designed.
Sales incentive plans translate business objectives into specific performance metrics for sales reps. Some common ones include:
This is where the sales incentive plan template gets tactical. It defines how much reps can earn and when. Common structures include:
Scenario:
Accelerators encourage reps to overachieve, not just meet goals.
Modern SPM platforms help track progress in real-time, ensuring reps can see their performance, understand where they stand, and adjust efforts accordingly. Visibility builds trust, drives accountability, and reduces disputes at payout time.
For example:
The "right" sales incentive percentage depends on a few key factors—industry, role, deal size, margins, and company stage—but there are some solid benchmarks and strategic guidelines from which to work.
OTE = On-Target Earnings (base + incentive)
Margin-based structures are great for protecting profitability and discouraging discounting.
Ask yourself:
How do you know if your current Sales Performance Management (SPM) structure is underperforming? The warning signs are often hiding in plain sight. Whether you're dealing with declining sales morale, stagnant revenue growth, or rising operational complexity, these red flags typically indicate that your sales incentive plan is out of sync with your business goals.
One of the most obvious indicators of an ineffective incentive structure is when too many reps are missing their quotas—or, conversely, when nearly all of them are blowing past targets with minimal effort. In the first case, your quotas may be unrealistic, or your plan fails to provide enough motivation to drive performance. In the latter, quotas may be set too low, leading to unnecessary overpayments and missed revenue potential. Either scenario reflects poor alignment between expected performance and actual business potential.
If your sales reps can't clearly articulate how they earn their commission—or if they need to consult a spreadsheet or a comp admin every time they close a deal—you have a clarity problem. Lack of transparency around incentives leads to confusion, disengagement, and, in some cases, missed earnings. By the way, the average payroll error costs $291 to rectify. Salespeople should be able to look at their plan and know exactly what behaviors are being rewarded and how their paycheck will be impacted.
Your sales incentive plan should drive the behaviors that lead to strategic outcomes. Yet many companies continue to reward outdated KPIs like the sheer volume of sales rather than more strategic measures like profit margin, customer retention, or cross-sell success. When the plan encourages the wrong actions, it can produce short-term wins at the cost of long-term growth—or even result in actively harmful behaviors like deep discounting or poor-fit client acquisition.
Talented sales professionals want to be rewarded fairly, consistently, and in ways that reflect their impact. If your top performers are leaving, especially for competitors, it could be a sign your incentive structure doesn't value them appropriately—or that it feels arbitrary or inequitable. High turnover is not just a morale issue; it's expensive, disruptive, and can seriously erode customer relationships and pipeline continuity.
When reps start keeping their own tracking systems for commissions, it's often due to a lack of trust in the official numbers. Shadow accounting wastes valuable time, introduces discrepancies, and signals a deeper issue with either the transparency or accuracy of your incentive management system. It can also lead to disputes, strained relationships with finance, and a general feeling of distrust in leadership.
Here's a breakdown of 7 different types of sales compensation plans, each tailored to different roles, goals, and business models. Whether you're scaling a sales team, launching a new product, or trying to drive specific behaviors, choosing the right role-specific incentives is key to aligning your overall incentive structure with team performance.
What it is: Reps earn 100% of their pay from commissions—no base salary.
Best for: Independent agents, contractors, or highly transactional sales environments.
Example:
Pros: High motivation toward sales targets, low risk to employer. Cons: High rep turnover risk, income instability.
What it is: The most common type of sales incentive. Reps receive a base salary plus commissions on sales.
Best for: Most B2B and SaaS sales teams.
Example:
Pros: Balance of income stability and performance incentives. Cons: Requires careful quota setting and cost planning.
What it is: Commission rates increase as reps exceed their quota.
Best for: Motivating high performers and driving overachievement.
Example:
Pros: Pushes reps to go beyond "just good enough." Cons: This sales incentive scheme can lead to overpaying if quotas are too soft.
What it is: Reps are paid based on deal revenue or profit margin.
Best for: Businesses with high variability in pricing or cost of goods.
Example:
Pros: Margin-based comp discourages deep discounting. Cons: Harder to calculate; requires transparency around margins.
What it is: Reps receive a "draw" or advance that's later offset by commissions earned during the sales process.
Best for: New reps ramping up or roles with lumpy sales cycles.
Example:
Pros: Provides income stability early on. Cons: It can be confusing if not explained clearly.
What it is: Reps earn fixed bonuses for hitting specific sales goals (not necessarily sales volume).
Best for: SDRs, customer success, and non-closing roles.
Example:
Pros: Simple to administer, good for behavior-based incentives that target individual motivations. Cons: Less scalable for quota-carrying reps.
What it is: A group of reps or cross-functional teams share bonuses based on common goals and collective performance.
Best for: Enterprise sales teams, customer success orgs, or new market expansion.
Example:
Pros: This sales process encourages collaboration and knowledge sharing. Cons: Group sales activities can demotivate top performers if others under-deliver.
Modern Sales Performance Management goes beyond simple compensation tracking. It incorporates analytics, forecasting, territory alignment, and ongoing optimization. To ensure your incentive plan is driving the right sales behaviors to foster business growth, consider the following best practices:
Your SPM structure should reflect your business goals. Launching a new product? Entering a new vertical? Your incentive plans should be designed to reward activities that support those initiatives. This might mean offering accelerators for specific SKUs or bonuses for landing clients in new industries.
While nuance is sometimes necessary, over-complicated plans create confusion. Simpler plans are easier to communicate, track, and adjust. A good rule of thumb is that if a sales rep can't explain how their variable compensation in under two minutes, the plan is too complex.
Leverage historical performance data and predictive analytics-based sales incentives to model different compensation scenarios. Modern SPM platforms allow you to simulate outcomes before deploying changes, reducing risk, improving accuracy, and targeting key customer segments.
The market evolves quickly. The types of sales incentives you use should too. Build agility into your SPM structure by reviewing plans quarterly and making data-informed adjustments. Incorporate feedback from sales reps, frontline managers, and finance.
Sales reps must understand how their efforts translate into compensation. Use dashboards, real-time commission tracking, and clear documentation to build trust and reduce distractions from selling time. At the same time, leverage non-monetary incentives like public recognition to augment incentives that focus on sales quotas to increase intrinsic motivation and drive positive behavior.
Leading organizations are investing in cloud-based Sales Performance Management and incentive compensation management software solutions to streamline and scale successful sales incentive plans. Platforms Xactly and SAP Incentive Management, especially when paired with expert partners like Canidium, offer configurable tools for effective sales incentive plan modeling, dispute resolution, and performance reporting.
With the right sales incentive structure, technology, and a strategic mindset, companies can shift from reactive compensation practices to proactive performance management that drives sales revenue growth and better business outcomes.