The debate is ongoing about what percentage of total compensation should be base vs. commissions. Ideally, you want to pay enough base salary so that your sales rep doesn’t need to worry about meeting basic obligations such as food, rent/mortgage and car payments. But you want to avoid paying too much. You don’t want your rep to feel like he can live comfortably off the base salary.
In general, I try to target the base salary at about one-third of the total compensation (base + commissions) at 100% quota attainment. This ratio can vary based on the level of total on-target earnings (OTE) and the length of the sales cycle. When the OTE level is higher ($300K and above) or the sales cycle is short (less than one month), I may offer a maximum base salary of 25% of OTE. When OTE is lower or the sales cycle is long, I’ve seen base salaries offered as high as 75% of OTE.
When you set base salary as a higher percentage of OTE, this reduces the risk borne by the sales representative. Given this situation, I suggest reducing the commission rate paid as a percentage of revenue or margin.
Wallace Management Group Can Help
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