What are typical sales commission terms?

It varies enormously by industry, margin and whether leads are supplied. Rather than copying a benchmark, calculate the share of gross margin per deal you can sustainably give away.

Is commission-only legal?

Rules differ by country and by whether the person is an employee or self-employed contractor — including minimum wage obligations for employees. Take local legal advice before setting up a plan.

Should commission be paid on revenue or profit?

Paying on collected revenue is simpler and more transparent; paying on margin protects you when discounting is common. Pick one and define it clearly in writing.

Sales commission structures explained

A sales commission structure defines how a salesperson is paid for the revenue they generate. The main models are commission-only, base plus commission, tiered, and residual — each shifting risk differently between the company and the rep.

You bring the leads or pipeline — our closers work them. Closing engagements run on your existing leads. Need the leads generated and meetings booked too? That's a separate service — see appointment setting and lead generation.

The main structures

Most compensation plans are a variation of four models.

Commission-only — no base pay, a different commission structure. Risk sits with the rep; cost tracks revenue for the company.
Base plus commission — a salary floor with a lower percentage on top. Stabilises the rep, fixes cost for the company.
Tiered — the percentage rises after a revenue threshold. Rewards over-performance.
Residual or recurring — a share of renewal or subscription revenue, often for a fixed period.

How to set the percentage

Work back from gross margin, not revenue. Decide what proportion of the margin on a deal you can hand over and still fund delivery, overheads and profit.

Then adjust for who does the work: a rep closing leads you supplied should earn less per deal than one who sources their own, because the acquisition cost has already been paid.

Details that cause disputes later

Most commission arguments are about definitions, not percentages. Agree these in writing before the first deal.

Paid on invoiced revenue or on cash collected?
What happens on refunds, chargebacks and cancellations?
Who owns the commission when a deal takes two people to close?
Are renewals commissionable, and for how long?
How and when are payments made?

When commission-only makes sense

Commission-only works when the deal economics is large enough to pay a specialist well from a single sale, and the offer is proven enough that a competent closer can genuinely sell it. It works badly on low-margin offers or unproven products, because good closers will not take the risk.

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