Commission plans often create tension between business owners and sales teams.
- Owners worry they’re overpaying.
- Sales teams feel like they’re underpaid.
- And everyone wonders: “Wait, should we really pay commission on that deal?”
It’s murky territory, and getting it wrong can hurt morale, profitability, and productivity. A strong commission plan motivates sales teams, aligns with company goals, and is easy to manage. With the right framework, you can create a plan that’s fair, effective, and actually works for your business.
We’ll walk you through 3 golden rules (hint: it’s called SEP—Simple, Equitable, and Profitable), share examples of commission splits, and tackle common challenges head-on.
Common Commission Splits
If you have a sales team, you likely already have a commission plan in place. But is it set up in a way that’s fair, competitive, and realistic?
Most commission plans follow a split between base salary and commission. While the exact ratio can vary, there are a few general benchmarks:
- Typical businesses: A 60/40 split is common. Sixty percent of compensation comes from base salary and 40% from commissions.
- Heavily commission-based industries: Industries like insurance or consulting often use splits like 70/30 or 80/20, where most earnings come from commissions.
If your split isn’t competitive (say, you’re offering too low a base salary), you’ll likely struggle to attract top talent. Conversely, if commissions are too generous, your margins could take a hit.
The SEP Framework: 3 Rules for Better Commission Plans
When structuring or restructuring a commission plan, three rules can help simplify the process. These rules—Simple, Equitable, Profitable (SEP)—create a foundation that works for both sales teams and business owners.
1. Simple to Calculate
If your sales team needs an Excel spreadsheet, a calculator, and a whiteboard to figure out their commission, your plan is too complicated.
Salespeople thrive on energy and momentum—they’re high-energy, people-focused, and often driven by the thrill of the deal. If they can’t calculate their commission on the spot while talking to a client, you’ve got a problem.
When salespeople can quickly calculate their commission, they’re more confident and motivated.
Simple plans reduce the risk of unnecessary discounting. A salesperson who knows their commission structure can decide on the spot if a deal is worth discounting or not.
2. Equitable
Paying commissions equitably can sometimes feel counterintuitive for business owners. It’s tempting to reduce commissions on deals that feel “too easy,” like leads from SEO or repeat customers. But this approach often backfires.
Why commissions should be equitable:
- Your sales team works hard, even if some leads are “warm.” Those three tough-to-source deals they landed probably required a lot of rejection and persistence. Paying fairly across all deals keeps them motivated.
- Unfair commissions can lead to burnout, resentment, and higher turnover.
Rewarding your sales team equally, regardless of where the lead comes from, acknowledges their role in closing deals and representing your brand professionally.
3. Profitable
This is the part that owners love: your commission plan needs to protect your bottom line. Generous commissions are great, but not at the expense of profitability.
Here’s how to make sure your plan is profitable:
- Understand your margins: What are your costs (sales labor, marketing, etc.) and what’s your average client lifetime value?
- Set a realistic return: Your sales team should deliver at least 2–3x the value of their compensation. For example, if a salesperson earns $50,000, they should generate $150,000+ in revenue.
If you’re in a high-volume, low-margin industry, your commission rates may need to be lower to keep your plan profitable.
Here’s what an effective commission plan looks like in action:
Let’s say you run a consulting firm, and you’re designing a commission plan:
- Simple to calculate: Sales reps earn 15% on deals over $50,000, and 10% on deals under $50,000. No formulas or spreadsheets required.
- Equitable: All deals count—whether they’re self-sourced, SEO leads, or client referrals. This keeps your team motivated and focused on closing.
- Profitable: You’ve calculated that your margins can support a 10–15% commission rate while still hitting 3x ROI for your sales team’s total compensation.
This plan is clear, fair, and sustainable—a win for everyone.
Think Long-Term
A great commission plan does more than just pay your sales team. It boosts morale, helps with retention, and aligns your sales goals with your company’s profitability.
If you’re ever in doubt, ask yourself these questions:
- Is this plan motivating for my team?
- Does it support my bottom line?
- Is it simple enough to explain in one minute or less?
If the answer to any of these is “no,” it’s time to tweak your plan.
Commission Plans Don’t Have to be Complicated or Frustrating
By keeping them simple, equitable, and profitable, you can build a structure that supports your sales team and your business.
But a strong commission plan needs a solid foundation. If you don’t have a handle on your overall labor costs, it’s nearly impossible to know if your compensation plans—including commissions—are actually working for your business.
If you’re ready to take control of where your money is going,
start here: Understanding Your Labor Costs.
It breaks down everything from wages to hidden expenses so you can finally see where your money is going—and where you can take back control.
