Sales Compensation Guide:

OTE, Base Pay, Commissions & Bonuses

Sales compensation is where sales strategy, finance, and human motivation collide.

If your comp plan is unclear, uncompetitive, misaligned with your sales motion, or simply unrealistic, you will:

  • Struggle to attract top-tier talent
  • Burn out your team
  • Encounter constant drama around quota and pay
  • Miss revenue targets

On the other hand, a well-designed sales compensation plan does three things exceptionally well:

  1. Attracts and retains the right salespeople
  2. Aligns rep incentives with company outcomes
  3. Creates clarity, predictability, and focus

This guide walks through how to build a modern sales compensation plan, with a focus on:

  • OTE (On-Target Earnings)
  • Base vs. variable pay
  • Commission structures
  • Bonuses and SPIFFs
  • Draws and guarantees
  • 1099 vs W-2 structures
  • Ramp periods
  • Common mistakes to avoid

Use it as your blueprint for designing comp plans that top salespeople actually want — and that your finance team can live with.

What Is OTE (On-Target Earnings)?

On-Target Earnings (OTE) is the total compensation a salesperson can reasonably expect to earn in a year if they hit their quota or performance targets.

OTE = Base Salary + Target Commission + Target Bonuses

Examples:

  • $60,000 base + $60,000 commission = $120,000 OTE
  • $40,000 base + $80,000 commission = $120,000 OTE
  • $0 base + $120,000 commission = $120,000 OTE (pure commission)

Top candidates focus heavily on OTE because it tells them:

  • What success looks like
  • Whether the opportunity is worth their effort
  • How serious you are about rewarding performance

If you want to attract serious sales professionals, you must:

  • Publish OTE (not hide it)
  • Make the math real, not fantasy

The Core Components of Sales Compensation

Most modern sales comp plans are built around four core elements:

  1. Base Salary
  2. Commission
  3. Bonuses / SPIFFs
  4. Benefits & Non-cash Incentives

Let’s unpack each.

1. Base Salary

The base salary is the fixed portion of pay. It should:

  • Cover a reasonable standard of living
  • Reflect role difficulty and seniority
  • Vary by geography and market
  • Balance risk and reward appropriately

Typical base salary ranges (these are directional, not exact):

  • SDR / BDR: $40,000–$65,000
  • AE (SMB / Mid-market): $55,000–$90,000
  • AE (Enterprise): $80,000–$130,000
  • Outside / Territory Sales: $50,000–$90,000
  • Roofing / Home Services: $0–$50,000 (often heavily commission-weighted)
  • Manufacturing / Industrial Sales: $60,000–$110,000
  • Sales Manager: $80,000–$130,000
  • VP of Sales: $130,000–$220,000+

Base salary is not where great salespeople get rich — it’s where they get stability.

2. Commission

Commission is the variable component that rewards performance.
 It is usually tied to:

  • Revenue generated
  • Gross margin
  • Units sold
  • New accounts acquired
  • Multi-year contract value

Common commission structures:

a) Straight Percentage of Revenue

Example:

  • 10% of all new revenue generated
     Works well for:
  • Roofing
  • Home services
  • Consulting
  • Simple B2B services

b) Tiered Commission

Example:

  • 5% on revenue up to quota
  • 8% on revenue 100–120% of quota
  • 10% on revenue above 120%

This rewards over-performance and motivates reps to push beyond quota rather than coast.

c) Margin-Based Commission

Example:

  • 8% of gross margin on each deal
     Works well when pricing and discounting flexibility are high.

d) Milestone-Based Commission

Example:

  • Commission split between:
    • Signed contract
    • First payment received
    • Successful onboarding

Useful for long-cycle or complex implementations.

3. Bonuses & SPIFFs

Bonuses and SPIFFs are supplemental incentives that:

  • Reward specific behaviors
  • Drive short-term focus
  • Align with strategic initiatives

Examples:

  • Quarterly quota bonuses
  • New logo bonuses
  • Strategic account bonuses
  • Product-launch SPIFFs (e.g., extra $500 per sale of new offering)
  • Fast-start bonuses for new reps

The key:
 Don’t let bonuses become more complicated than your base commission plan.

4. Benefits & Non-Cash Incentives

These don’t show up in OTE directly, but matter a lot:

  • Health benefits
  • Retirement contributions
  • Paid time off
  • Profit sharing or equity
  • Training and development budget
  • President’s Club trips
  • Public recognition

Top performers won’t trade a bad comp plan for a ping-pong table.
 But when the comp plan is solid, these extras can tilt decisions.

Common Sales Compensation Models (With Examples)

Here are the main compensation models you’ll encounter, with pros and cons.

Model 1: 50/50 Base-to-Variable Split (Classic SaaS/B2B)

Example:

  • Base: $70,000
  • Variable: $70,000 at 100% quota
  • OTE: $140,000
  • Quota: $700,000 in annual new revenue

Pros:

  • Clear relationship between performance and pay
  • Attractive to experienced reps
  • Easy to model and forecast

Cons:

  • Requires discipline in quota setting
  • Underpaying vs. market will scare off talent

Model 2: 60/40 or 70/30 Base Heavy (Early-Stage or Complex Sales)

Example:

  • Base: $90,000
  • Variable: $60,000
  • OTE: $150,000

Pros:

  • Attractive for complex, long-cycle sales
  • Helps retain senior salespeople

Cons:

  • Risk of misaligned incentives if variable is too small
  • More exposure if rep underperforms

Model 3: 30/70 or 20/80 Base Light (High-Commission Roles)

Common in:

  • Roofing
  • Solar
  • Home services
  • Heavy commission B2B services

Example:

  • Base: $30,000
  • Variable: $90,000
  • OTE: $120,000

Pros:

  • Very high upside for performers
  • Lower fixed cost for employer

Cons:

  • Scares off risk-averse candidates
  • Requires strong lead flow or self-generated pipeline

Model 4: 100% Commission (Common for 1099)

Example:

  • No base
  • 20–30% commission on closed deals
  • Reps can earn $150,000+ with strong performance

Pros:

  • Zero fixed salary cost
  • Strong alignment with performance

Cons:

  • Smaller candidate pool
  • Higher turnover
  • Requires robust opportunity for high earnings

If you’re going to use 100% commission, the opportunity must be legitimately lucrative and well-supported.

1099 vs. W-2 Sales Compensation

W-2 Sales Employees

  • Regular paycheck
  • Taxes withheld
  • Eligible for benefits
  • Clear company control: hours, process, reporting

Best for:

  • Structured sales teams
  • Brand-sensitive environments
  • Complex offerings

1099 Independent Sales Contractors

  • Paid via commission and/or retainer
  • Responsible for their own taxes
  • Often sell multiple products/services
  • More flexibility, less control

Best for:

  • Manufacturers reps
  • Agents and brokers
  • Roofing / home services closers
  • Consulting or advisory sales

Each model must align with:

  • Legal compliance (misclassification risk is real)
  • Level of control you need
  • Target candidate expectations

Ramp Periods and Draws

New sales hires need time to ramp. If you pretend they don’t, they’ll quit or fail.

Ramp Period

Typical ramp periods:

  • SDR: 30–60 days
  • SMB / Mid-market AE: 60–120 days
  • Enterprise AE / Complex Manufacturing: 90–180 days

During ramp, you can:

  • Reduce quota
  • Offer “ramp OTE” with guaranteed minimums
  • Front-load training and coaching

Draws (Recoverable vs. Non-Recoverable)

Draw = an advance on future commissions.

Recoverable Draw

  • Paid upfront
  • Must be “paid back” via future commissions
  • If commissions don’t exceed the draw, some companies carry a negative balance

Non-Recoverable Draw

  • Paid upfront
  • Does not need to be paid back if rep falls short
  • Often used in early months

Draws can make risky roles more attractive — but must be explained clearly.

How to Set Quotas That Aren’t Fantasy

A comp plan is only as good as the quota behind it.

Bad quotas:

  • Are copied from another company
  • Ignore ramp time
  • Ignore lead flow capacity
  • Ignore sales cycle length
  • Assume “10x” output with no change in process

Good quotas:

  • Based on historical data
  • Aligned with marketing and ops reality
  • Adjusted for territory potential
  • Reasonable for a strong but not superhuman rep

A common rule of thumb:
 Top performers should be able to hit 130–180% of quota.
 Solid reps should be able to hit 90–110%.

If everyone misses, the comp plan isn’t “motivating” — it’s broken.

Designing Comp Plans for Different Roles

SDR / BDR

  • Comp focus: meetings set, pipeline sourced
  • Model: $45,000–$65,000 base + variable tied to qualified meetings, opportunities created, or pipeline generated

AE

  • Comp focus: revenue closed, bookings, or margin
  • Model: 50/50 base-to-variable tied to new business or expansion

Outside / Territory Sales

  • Comp focus: territory revenue, new accounts, territory growth
  • Model: Base + commission; sometimes with territory performance bonuses

Roofing / Home Services

  • Comp focus: jobs sold, contract value, margin
  • Model: High commission; sometimes draw or small base; bonus for high close rate or upsells

Sales Manager

  • Comp focus: team performance
  • Model: Higher base, lower variable; variable often tied to team attainment

Common Sales Compensation Mistakes

Avoid these if you want your plan to actually work:

  1. Hiding OTE
    Top reps don’t apply to mystery-comp roles.
  2. Setting quotas based on hope, not math
    “We need $3M, therefore every rep has a $3M quota” is not a plan.
  3. Changing the plan mid-year
    Nothing destroys trust faster than moving the goalposts.
  4. Inconsistent rules and exceptions
    Side deals, manager overrides, and one-off promises erode your credibility.
  5. Overcomplicating the plan
    If a rep can’t explain their comp in one or two sentences, it’s too complex.
  6. Under-rewarding top performance
    Your best performers should feel rich relative to your averages.

How to Explain Your Compensation Plan to Candidates

When interviewing candidates, you should be able to clearly answer:

  • What is the OTE?
  • What’s the base?
  • What’s the commission rate?
  • What’s the realistic range top performers are earning today?
  • How long is ramp?
  • How achievable is quota?

A clear answer builds trust.
 A hand-wave kills interest.

Recommended Resources

(Use this as your Resources block at the bottom of the page.)

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The Complete Guide to Hiring Salespeople in 2026

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Where to Find Salespeople in 2026 (Top 12 Sources Ranked)

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Sales Job Description Templates (Free, Copy & Paste)

https://salesfolks.com/post/sales-job-description-templates

Best Sales Interview Questions to Identify Top Talent

https://salesfolks.com/post/sales-interview-questions

Sales Assessment Tools to Predict High-Performing Reps

https://salesfolks.com/post/sales-assessment-tools

How Much Does It Cost to Hire a Salesperson?

https://salesfolks.com/post/sales-hiring-costs

How Long Does It Take to Hire a Salesperson?

https://salesfolks.com/post/sales-hiring-timeline

Hire Salespeople Knowledge Hub

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