illustration of sales reps standing in front of a computer with a charts and coins to represent sales commission

What Is Sales Commission? Types, Examples, & Formulas

Learn the basics of strong, effective sales commission plans to attract top talent and drive business goals.

By Richard Harris, Founder and CEO, The Harris Consulting Group

May 7, 2025

Sales Commission FAQs

Commissions are designed to motivate sellers to hit specific sales targets in a set period, typically a quarter. This incentivizes high performance, which leads to a higher likelihood of hitting sales targets. When well structured, carefully communicated, and aligned with overall company goals and targets, commissions are an effective means of increasing sales.

The most common sales commission structures are straight commission (100% of pay is based on commission), base salary plus commission, tiered commission (a rep is paid based on the amount sold), and gross margin commission (based on profit generated, not total sales amounts).

By tying payout to results reps achieve, commissions incentivize sellers to hit specific sales targets. In order to hit these targets, they often focus on improving productivity and selling efficiency, cutting time to close and increasing their win rates.

Sales commissions are typically set by sales leadership, aligned with overarching business goals and sales targets. This translates into a certain percentage reps can earn per sale, or a fixed amount per sale. Commissions are usually calculated quarterly, and paid out to reps in addition to other promised compensation such as a base salary or spiffs (one-time bonuses).

Sales commissions are an effective way of tying business goals to rep performance. If reps sell effectively and hit targets needed to earn commission, the business also hits its targets —a win-win.