Base Salary + Commission – What’s the Optimal Mix?

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

At Wallace Management Group, we’ll help you design and implement sales commissions plans based on your company’s goals and strategic plan. We’ve written sales compensation plans for small, medium and large companies in industries ranging from technology to manufacturing, industrial services, distribution and logistics. Learn more at wallacemanagment.com.

We’d like to help you achieve your sales and marketing goals. Contact us at (203) 856-9400 or info@wallacemanagement.com to discuss how we can help you drive more business.