Six commission plans,
written out properly
Most commission plan templates are a table of rates with the hard parts left blank. These six are complete: what triggers payment, when it lands, what happens when a deal reverses, and what a rep at target actually takes home.
Photograph: cottonbro studio, Pexels
A commission plan is a contract that has to survive contact with a bad quarter, a disputed deal and a departing rep. The parts people leave out are always the same four: when the commission is considered earned, when it is paid, what reverses it, and what happens if someone leaves before payment. Each template below fills all four in.
What every plan needs, whatever its shape
Before the templates, the checklist. A plan missing any of these will generate a dispute, and the dispute will arrive at the worst possible moment, which is when a rep resigns.
- The earning event
- The moment commission becomes owed. Signature, invoice, cash collected, or installation. Cash collected protects the company and frustrates reps. Signature does the reverse.
- The payment date
- Which payroll run carries it. Usually the cycle following the earning event, which gives finance time to calculate and gives the rep a predictable date.
- The reversal terms
- What happens on refund, cancellation, non-payment or early churn. Include the window length and how recovery works, because a silent plan defaults to an argument.
- The leaver clause
- Whether commission on closed deals is paid after someone departs. The most common omission and the most expensive one, since it is usually discovered during a resignation.
Template 1: flat rate, business to business
Suited to a short sales cycle, a single product line and a team small enough that everyone trusts the arithmetic.
Rate: 8% of contract value. Earning event: invoice raised. Payment: the payroll run following the month of invoice. Reversal: full reversal if the customer cancels or fails to pay within 60 days of the invoice date, recovered from the next commission payment. Leaver: commission paid on deals invoiced before the final working day, in the normal cycle.
At $600,000 of annual production a rep earns $48,000 of commission. Against a $60,000 base that is a 55/45 split at target, which sits in the normal range for a hunter role.
Template 2: tiered with marginal bands
For teams where a flat plan has stopped producing effort above target. Marginal rather than retroactive, because retroactive costs roughly double at the thresholds and is much harder to forecast.
Rates: 5% on the first $250,000 of annual production, 8% from $250,001 to $500,000, and 12% above $500,000. Bands reset annually on 1 January. Earning event: invoice raised. Payment: monthly, in arrears. Reversal: as template 1. Leaver: paid on invoiced deals, with band position frozen at the leaving date.
A rep landing exactly on a $500,000 target earns $32,500. The same rep at $650,000 earns $50,500, so the last $150,000 carried a materially better rate. That is the pull the plan is buying.
Template 3: gross margin
Use where reps hold discounting authority. Requires reliable cost data per line item, so confirm that exists before adopting this.
Rate: 25% of gross margin, where gross margin is contract value less the cost recorded in the product catalogue at the time of sale. Earning event: invoice raised. Payment: monthly in arrears. Reversal: proportional reversal on refund. Leaver: paid on invoiced deals. Floor: no commission where margin is negative, and negative margin deals require written approval before they can be sold.
A rep selling $800,000 at an average 40% margin earns $80,000. The same rep discounting to a 30% average earns $60,000 on the same revenue, which is the point of the structure.
Template 4: setter and closer split
For teams where meetings are booked by one person and closed by another. The rule that matters is what happens when the split is not recorded before the deal closes.
Rates: 8% of contract value, divided 30% to the setter and 70% to the closer. Default applies unless a different split is recorded on the opportunity before the closed date. Disputes are settled by the sales manager, whose decision is recorded on the deal instead of agreed verbally. Earning event: invoice raised. Payment: monthly. Reversal: proportional for both parties. Leaver: paid on invoiced deals for both roles.
On a $120,000 deal the commission pool is $9,600. The setter takes $2,880 and the closer $6,720.
Template 5: milestone, for long fulfilment
For home services, solar, construction and anywhere a signature is months ahead of delivery.
Rate: 6% of contract value, paid in three parts. Thirty percent on signed contract, fifty percent on completed installation, and twenty percent once the customer has passed the cancellation window. Earning event: each milestone independently. Payment: the payroll run following each milestone. Reversal: any unpaid milestones are cancelled and paid milestones are recovered if the customer cancels inside the window. Leaver: milestones reached before departure are paid, later ones are not.
On a $30,000 contract the total commission is $1,800, arriving as $540 at signature, $900 at installation, and $360 after the window closes.
One deal, three payments, three pay periods. If the customer cancels in May the $540 already paid is recovered in a period later than the one it was earned in, which is the mechanic that makes milestone plans awkward to track.
Template 6: residual, for recurring revenue
For payment processing, insurance, telecoms and subscription products where the customer keeps paying.
Rate: 40% of the monthly margin the account generates, for as long as the account remains active. Earning event: the monthly close of the processor or billing statement. Payment: monthly in arrears, one cycle behind the statement. Reversal: any signing bonus is recovered in full if the account attrits within 180 days. Negative months carry forward instead of producing a negative payment. Leaver: residuals cease at departure unless the agreement says otherwise, and this clause should be explicit in both directions.
An agent with 60 accounts averaging $200 of monthly margin earns $4,800 a month, and continues earning it in a month where they sign nothing.
What each template pays at target
The same rep, six plans, showing annual variable earnings and the base each is usually paired with. Useful for comparing structures that look nothing alike on paper.
| Template | Production at target | Variable earnings | Typical base |
|---|---|---|---|
| Flat rate 8% | $600,000 revenue | $48,000 | $60,000 |
| Tiered marginal | $500,000 revenue | $32,500 | $70,000 |
| Gross margin 25% | $800,000 at 40% margin | $80,000 | $65,000 |
| Setter and closer | $1.2m closed, 70% share | $67,200 | $55,000 |
| Milestone 6% | $500,000 contracted | $30,000 | $45,000 |
| Residual 40% | 60 accounts, $200 margin | $57,600 | $40,000 |
Illustrative plans built for this guide. Base salaries reflect common pairings in business to business sales, and are illustrative.
Questions people actually ask
- What should a commission plan document include?
- Rate and what it applies to, the earning event, the payment date, reversal terms with a window length, and a leaver clause. Plans that omit the last two work perfectly until the first refund or the first resignation, at which point there is no agreed answer and the disagreement is settled by whoever argues harder.
- When is commission considered earned?
- Whenever the plan says it is, which is why the plan must say. Common choices are contract signature, invoice raised, cash collected and delivery completed. Cash collected protects the company from paying on revenue that never arrives. Signature pays reps fastest. Invoice raised is the usual compromise.
- Can commission be paid after an employee leaves?
- It depends on the plan and on local employment law, which in several jurisdictions treats earned commission as wages regardless of what the plan says. The practical answer is to write the clause explicitly and have it reviewed locally, because the default in the absence of a clause tends to favour the employee.
- How often should commission be paid?
- Monthly, in the payroll run following the earning event, suits most teams. It is frequent enough to feel connected to the work and gives finance a full cycle to calculate and check. Quarterly payment weakens the link between selling and being paid, and is worth the trade only when the sales cycle is genuinely long.
- How do you change a commission plan without losing the team?
- Announce it before the period starts, never during one. Show each rep what they would have earned under the new plan on their actual last year, since abstract percentages persuade nobody. Where the new plan pays less for the same work, say so directly rather than presenting it as a neutral update.
A template is a starting point and nothing more
These six are written to be copied and edited, and none of them is right for your business as written. The rates are illustrative, the thresholds are made up, and the leaver clauses need review under your own employment law. What they do carry that most templates omit is the four fields that cause actual disputes. Fill those in, whichever structure you land on.
Have the plan run itself
Whichever template you start from, Commish turns it into a calculation your reps can check and your finance team can prove. Bring the plan and a month of deals.