Examples of Pay Mix From Real Sales Compensation Plans
Let’s look at a few examples of ways a company might structure their pay mix. In all three examples, let’s pretend the rep’s on target earnings, or OTE, is $100,000.
- If 80% of a rep’s income is fixed compensation and paid out on a monthly basis and 20% is variable compensation paid out after each closed deal, the pay mix is 80/20. That means their base salary is $80,000 a year with the ability to earn an additional $20,000 in sales commission.
- If half of a rep’s total compensation comes from fixed/monthly payments and half comes in commission after each closed deal, the pay mix is 50/50. In our example that means $50,000 of the reps salary would be paid out monthly and the other $50,000 would be earned through commission.
- If the pay mix is 40/60, in our example, that means a sales rep has a base salary of $40,000 and the ability to earn $60,000 in incentive compensation.
Pay Mix Benchmarks and Statistics
How much of a sales rep’s compensation comes from base salary and how much comes from commission? The answer depends on the organization, but the general trend is that most companies allocate 60% of their reps’ pay to fixed compensation and 40% to variable compensation. This breakdown has been found across industries, with only slight variations in degree.
Let’s look at some more pay mix benchmarks:
- Average US sales teams use a 60/40 pay mix structure for sales reps (source)
- The industry average for sales commission typically falls between 20% and 30% of gross margins. At the low end, sales professionals may earn 5% of a sale, while straight commission structures allow a 100% commission (source)
- In recent years, variable pay is increasing as a percentage of pay, ranging anywhere from an increase of 3-10% across field and inside sales roles (source)
- Remote/in-office hybrid roles are seeing salaries made up of higher commission percentages than standard sales roles (source)
How to Decide Your Sales Compensation Pay Mix
The right pay mix strategy is one that both aligns with the company’s goals and also incentivizes your team fairly. In order to determine the right pay mix, it’s important to understand the impact of each option.
Compensation mix is largely dependent on a few factors. These include the level of influence the role has on each purchase, the complexity of each sales cycle, the amount of work that goes into each deal, the industry, and more. Let’s break down a few common pay mix ratios, what they mean, and how they’re used:
Commission-Only Pay Mix
0/100: This mix is typically referred to as a commission-only compensation structure. Essentially, an employee paid on a commission-only basis doesn’t have a base salary to rely on. All of the pay they bring home is dependent on their performance.
A split like this is most commonly used in startups or small businesses who are just starting out. They don’t have the resources to offer a base salary just yet and they need a sales team that’s motivated to succeed.
The cons, of course, are high levels of sales turnover due to lack of financial security, burnout, and cut throat sales teams who may struggle to work together.
Commission-Heavy Pay Mix
10/90 to 40/60: A pay mix with a 10% to 40% ratio of base salary still puts a heavy emphasis on sales commission– also known as a rep’s pay at risk. This type of pay structure might be used in cases where a rep has a lot of ownership and influence over a sales cycle. Their actions and behavior can be tied directly to outcomes.
Be careful using an aggressive pay mix or incentive plan with roles that have less influence over outcomes– SDRs and BDRs are a good example here. While these roles are critical to a business’s success, there are many elements that are outside a BDR’s control after a certain point in the sales cycle.
Evenly Split Pay Mix
50/50: A pay mix with even parts base pay and commission pay are actually fairly common starting plans. This split allows organizations to make tweaks and test changes while having a control to compare with.
This structure offers more security in terms of base pay but a rep’s success is largely in their own hands. We don’t recommend this commission split for every organization or role. Like the previous plans we spoke about, roles without much control or influence over the average sales sales cycle may get burnt out or frustrated by a 50/50 pay mix. This stems from an inability to earn commission off factors they perceive to be out of their control.
Base-Heavy Pay Mix
60/40 to 90/10: A sales commission structure that is made up primarily of base pay, offers more financial security to reps. This type of commission structure is used in companies that have the resources to pay teams a regular salary. It’s also often utilized in roles that have less control or influence over purchase decisions. This would apply for a BDR role or roles that impact deals in less direct ways.
We caution against using a base-heavy pay mix for roles or teams that put in a lot of work to close deals- think, sourcing leads, prospecting, booking meetings, holding demos, etc. If you’re paying a larger base salary, you’ll find teams aren’t as motivated to do the work needed to win sales.
How to Calculate Pay Mix
Whether you’re in charge of compensation strategy or sales manager trying to calculate pay mix, the math is actually pretty straightforward. Simply divide your base salary by your OTE. Let’s look at an example.
If your OTE is $120,000 and your base pay is $70,000, dividing $70k by $120k would give you .58. Multiply that by 100 to get the percentage of base salary and you have 58%. Subtract 58% from 100% to find your commission split and you’re left with 58/42.
