Incentive Types

Designing an effective commission plan is one of the most important steps in driving sales performance. Incentives not only motivate your sales team but also align their activities with company goals.

Written By Gregor Koehler

Last updated 6 months ago

1. Deal Participation

What it is
Deal participation pays a direct commission on each deal, based on its value.

When to use it

  • Ideal for transactional sales teams where reps close many smaller deals.

  • Works well in industries like SaaS, retail, or insurance where deal volume is high.

Example

  • A rep earns 5% of the revenue from every deal they close.

  • A $20,000 deal = $1,000 commission.

Pros

  • Simple to understand and calculate.

  • Motivates reps to close as many deals as possible.

Cons

  • Doesn’t always incentivize profitability or long-term customer value.

Best Practice
Consider adding a tiered structure (e.g., higher % for larger deals) to encourage reps to pursue more valuable opportunities.

2. On Target Commission (OTC)

What it is
OTC is the expected commission a seller earns when they meet their quota (sales targets) within a defined period and variable salary (configured in the user profile).

When to use it

  • Perfect for quota-driven sales teams.

  • Best for companies selling high-value or subscription-based products with longer sales cycles.

Example

  • A rep has a $500K quarterly quota.

  • Their On Target Earnings (OTE) is $100K, split between base salary ($60K) and commission ($40K).

  • If they achieve 100% of quota, they earn the full $40K commission.

Pros

  • Aligns sales rep performance directly with company revenue goals.

  • Predictable for both employer and employee.

Cons

  • Can demotivate reps if quotas are unrealistic.

Best Practice
Introduce accelerators (higher commission rates once reps exceed quota) to keep motivation high after targets are met.

3. Deal Bonus

What it is
An additional financial reward given for achieving specific milestones or exceptional performance.

When to use it

  • To reward top performers who go above and beyond.

  • To encourage behaviors beyond revenue, like customer retention or upselling.

Example

  • $5,000 bonus for closing a very large deal.

  • Bonus for achieving 100% of a target.

Pros

  • Flexible - can reward individual or team success.

  • Helps reinforce behaviors not directly tied to deal value.

Cons

  • If overused, bonuses can become expected instead of motivational.

Best Practice
Use bonuses sparingly and strategically so they feel like special recognition, not just part of regular pay.