Uncapped commission means there is no limit to the amount of commission a sales rep can earn during any given pay period.
Capped vs Uncapped Commission
Although uncapped commission is often a given within modern sales organizations, there are still companies who use a capped commission strategy. The difference between capped and uncapped commission is simple: Capped has a limit and uncapped doesn’t.
The reason a company may choose to put a cap on commissions typically has something to do with budgets and accounting. Maybe they aren’t working with a lot of money or maybe they’re trying to protect themselves from overspending on sales commissions. Whatever the reason may be, it often backfires. We’ll talk about this more in the next section.
The Benefits of Uncapped Commission
Although uncapped commission means your organization will likely spend more money paying out sales commission, it also means you’re earning more money from closed deals. Uncapped commission will work in your favor and result in a positive ROI if you’ve set appropriate quotas and built a commission structure that incentivizes the right behaviors and activities.
Let’s look at some benefits of an uncapped commission strategy:
Motivation: A cap on commission means a cap on motivation. An uncapped commission structure means your sales reps have a reason to continue building out pipeline and prospecting after they’ve met quota or hit the commission limit.
Promotes good behavior: Capped commission structures often lead reps to try and game the system. Once they hit their commission limit, you may see reps pushing deals into the next pay period just so they’ll be paid. This isn’t a great experience for prospects. Uncapped commission, on the other hand, doesn’t create hoops for reps to jump through and incentivizes reps to close deals as quickly as they can.
Increased revenue:Typically, sales commission is a percentage of a total contract amount. Therefore, closing deals will always result in earning more than you spend on commission.
Trust in leadership:Would you be more likely to trust a company that doesn’t put a cap on your potential earnings or a company that limits how much you can earn? The answer is obvious. Capped commission structures set the tone for an adversarial relationship between sales teams and leadership from the very start.
Less rep turnover:Sales turnover is a massive issue– and an expensive one. If you cap commissions to reduce costs, you’re only creating another, more expensive problem. If you don’t have uncapped commissions, your best reps will almost always leave you for a company that puts no limit on their commission.
If you want to make your sales reps happy, look beyond what you pay them. Studies have shown that employees also want meaningful work, the right tools to do their job, and flexibility when they need it. They want to feel valued. And that starts with the right incentive framework.
Most companies, however, don’t have one. They’re either using Excel or some clunky software to handle it for them. If your plan is locked away on some CFO’s laptop, causes arguments every month, and contains so many errors, reps keep their own records, it’s time you threw it out and started afresh.
Spiff and Brevet recently conducted a survey to better understand the policies and practices of SaaS compensation plans for sales teams. More specifically, the research addressed the most common questions around sales crediting, mega deals, accelerators, new-hire compensation, and spiffs. The goal of the research is to help your organization make better-informed decisions around these policies and practices.
Sales Development Reps– or SDRs– are a crucial part of any business. SDRs are often the first line of qualification and a major source of pipeline at most organizations. To put it bluntly, how you compensate your SDRs can make or break the success of your sales organization.
The right commission structure can motivate your SDRs to jump out of bed in the morning and take action while the wrong one can wreak havoc on your revenue and pipeline goals.