An Account Executive sales compensation plan that pays the same single rate commission rate on all deals closed until the rep hits 200% of quota. Upon reaching 200%, the rep is no longer eligible to earn additional commissions for that quota period.
This capped compensation model may look like a single rate commission plan, which pays a set, non-changing sales commission rate on all deals. However, this plan is actually a multiple rate commission plan because the rep earns a single rate until they achieve 200% quota. Once that occurs, the rep may no longer earn commissions. Unlike your typical multiple rate commission plans, the commission rate doesn’t increase or decrease based on quota attainment, different products, longer contract terms, or any other factor… besides dropping to 0%! Note: We have strong feelings about capped sales commission plans, as in strongly against. An uncapped commission plan will always motivate your reps more than a capped plan.
A Quota to OTE Ratio of 4 - 8 is best.
This plan includes one path and features one flat-rate (Single Rate Commission) that’s paid out until the rep hits 200% quota. After that, the rep earns 0% on new business until the quota period resets.
I honestly can’t think of a single reason to cap a new business sales rep’s commission. If you have a good example, I’m all ears.
Chief of Staff
150% quota and above:
200% quota and above:
Monthly resale quota:
300% quota and above:
As with most compensation plans, the two major components that will vary across sales teams are:
First, you need to decide the quota period. This is the frequency at which a rep is held to that sales quota. The most common quota periods are: quarterly (45% of plans), annual (25% of plans), and monthly (25% of plans) with 5% of plans having other frequencies (weekly, bi-weekly, semi-annually, etc.).
Once you decide that, you will need to determine a quota that is both low enough to be attainable and high enough to be valuable for your business. One way to do this is by using our Quota:OTE Ratio Calculator.
Next, you’ll set your commission rate. This plan features a Single Rate Commission Plan which can be easily calculated.
Take the total variable compensation the rep is set to earn if they hit their target (for example, $60k/year) and divide that number by their annualized quota/target from above (for example, $720k/year). Given those two examples, that would be $60k/$720k = .0833 or 8.33% commission.
We think no, and there’s a couple of reasons why you should not cap sales commissions. For starters, it’s demoralizing. If your rep closes the biggest deal the company has ever seen and the commissions don’t reflect that, your rep is going to leave. You should reward your reps for bringing in that sizable revenue and not penalize them by putting a ceiling on their earning potential. Some companies cap sales earnings in an effort to spread out deals consistently throughout the year. However, unless your product has zero competitors and if you can control when your buyers buy, this logic is greatly flawed. For 6 other compensation plan principles, check out this blog.
If you feel you simply must cap your reps’ commissions, you should do it in a way that doesn’t encourage your team to do the bare minimum. Capping at exactly 100% of quota will mean that as soon as your reps hit their quota, they’re hitting the golf course. So what should that cap be? We recommend 200% as a starting point. If your reps are still hitting over 200% of their quota, maybe you should look into increasing their quota!
Most companies cap commissions because they don’t want their reps to have an outrageously large commission check. If that’s your justification (and we can’t talk you out of it!) then consider a decelerator beyond a certain point. So say a salesperson earns 10% commission until they hit 200% of quota, then they earn 5% thereafter. Yes, it’s still discouraging overperformance… but not as much!
Single rate commission plans are the simplest variable compensation plan out there. It’s for that reason that around 10% of all compensation plans follow this rule. The math is simple to calculate and since reps easily understand their compensation plans, they focus on closing deals rather than wasting time thinking about how to maximize their compensation.
The math to find your commission rate is fairly easy! Take the variable compensation that a rep earns for hitting their target (say $50k a year) and divide that number by their target (say $500k a year). Using this example, $50k/$500k, gives you a commission rate of .10 or 10%. Boom. You’re done!
If you’re building out your team and need your first comp plan, the single rate one is a solid one to start with. Additionally, a single-rate commission plan allows you to add complexity to the plan via accelerators, bonuses, or SPIFs later on, which can act as a good test for future sales commission structures.
Sales commissions are a form of variable pay that pay reps based on a percentage of the total revenue from a sale. There are many forms of commissions, including the tiered commission structure, gross-margin commission and single rate. Keep in mind that sales commissions are not the same as bonuses. If a rep collects 10% on every deal closed, that classifies as commissions. However, if the rep takes home $400 on every deal they close, that’s a bonus — a Single Rate Bonus.
An Account Executive compensation plan that pays different sales commission rates based on the rep’s quota attainment and requires the rep to hit at least 60% quota before earning any commissions.
An Account Executive compensation plan that pays different sales commission rates based on the rep’s quota attainment, including a decelerator if the rep is below 50% quota.