Sales Commission Structures for Small Businesses
Get a sales commission structure right and it quietly does your management for you, pointing your salespeople at exactly the outcomes you want. Get it wrong and it demotivates good people, rewards the wrong behaviour, or quietly drains your margin. For a small business, where every hire counts, it is worth getting this right from the start. This guide covers the main commission structures, how to set targets and OTE, and the mistakes to avoid.
What is a sales commission structure?
It is the way you pay a salesperson for what they sell, usually a combination of a basic salary and commission earned on results, adding up to their on-target earnings, or OTE.
The structure sets the balance between guaranteed pay and performance pay, and it shapes behaviour more than almost anything else you do. Salespeople respond to how they are paid, so the structure is effectively a set of instructions about what you want them to prioritise. Designing it well means deciding what behaviour you want to reward, then building the numbers around that.
The main sales commission structures
Most small businesses use one of a handful of models. The right one depends on your margins, your sales cycle and how much security your people need.
| Structure | How it works | Best for |
|---|---|---|
| Basic plus commission | A guaranteed salary plus commission on sales | Most roles; balances security and motivation |
| Tiered commission | The commission rate rises as targets are exceeded | Driving high performers to push beyond target |
| Commission only | No basic, pay is entirely performance-based | Rarely ideal; high risk to candidate quality |
| Draw against commission | An advance paid back from future commission | Smoothing income during a ramp period |
For most first hires, basic plus commission is the sensible default. It gives the person enough security to take the job and stay focused, while keeping a real incentive to perform.
What is a typical base-to-commission split?
There is no universal figure, but a balance between basic and commission that reflects how much the salesperson controls the outcome usually works best.
The more directly a salesperson influences the sale, the more weight can sit on commission. A pure new-business hunter might carry a higher commission share, while a role with long cycles or a lot of account management often needs a stronger basic. The key is that the OTE has to be genuinely attractive and genuinely achievable. Set it too low and you will not attract good people; set it so high that nobody reaches it and you will demotivate them and lose them.
Should you hire commission only?
Usually not, especially for your first hire. Commission-only roles tend to attract weaker candidates and push people toward short-term behaviour.
It is tempting because it feels low-risk: you only pay for results. But strong salespeople with options rarely take commission-only roles, because they can get a basic elsewhere, so you shrink your pool to people who could not get a salaried role. It can also push people toward aggressive, short-term selling that damages your reputation. There are niche cases where it works, but for most small businesses building something for the long term, a basic plus commission attracts better people and better behaviour.
How do you set targets and OTE?
Set targets that are realistic, motivating and tied to your margins, and make sure the OTE is a number a good salesperson would be pleased to earn.
Base your target on real evidence of what is achievable, ideally from your own selling, rather than a hopeful guess. Make sure the commission is funded by genuine margin, so a successful salesperson is always profitable for you. And sense-check the OTE against the market, because if it is not competitive, the people you want will simply go elsewhere. A good structure aligns three things: the salesperson earns well, you stay profitable, and the behaviour it rewards is the behaviour you actually want.
Commission structure mistakes to avoid
A few common errors turn a motivating structure into a demotivating one.
- Capping commission, which tells your best people to stop selling once they hit the limit.
- Making it so complicated that nobody can work out what they will earn.
- Setting targets nobody can realistically hit, which kills motivation fast.
- Rewarding the wrong thing, such as revenue when you actually need margin.
- Paying commission too long after the sale, so the link between effort and reward fades.
Sales commission structures: FAQs
What is the most common sales commission structure?
Basic salary plus commission is the most common and usually the most sensible. It gives security to attract good people while keeping a real incentive to perform.
What is OTE?
On-target earnings: the total a salesperson can expect to earn if they hit their targets, combining basic salary and commission. It is the headline figure good salespeople assess a role by.
Is commission-only a good idea?
Usually not, especially for a first hire. It tends to attract weaker candidates, since strong salespeople can get a basic elsewhere, and it can encourage short-term behaviour that harms your reputation.
Should I cap sales commission?
Generally no. Capping commission tells your best performers to stop selling once they reach the limit, which is the opposite of what you want. Fund commission from real margin instead so high earners stay profitable.
How do I set a fair sales target?
Base it on real evidence of what is achievable, ideally from your own selling, make sure the OTE is competitive and attractive, and ensure the commission is funded by genuine margin so success is always profitable for you.
What makes a commission structure demotivating?
Capping earnings, overcomplicating the maths, setting unreachable targets, rewarding the wrong metric, and paying commission long after the sale. Each weakens the link between effort and reward.