SALES & MARKETING
"What's the best sales commission structure for a B2B Saas company?" is a question that we hear a lot at Monterro.
It’s a pretty loaded question – and that’s because there’s no one-size-fits-all approach. OTEs (on-target earnings), quotas, commission rates and salary rates vary across cultures, countries and companies. If you want to focus your sales team on the right things at the right time, such as a product launch or a new market entry, a well thought out compensation model is essential.
We’ve spent years developing the right approaches for all kinds of B2B software companies – and know the consequences of getting it wrong as well as the huge potential of getting it right.
In this guide, we’ll give you the insights you need to craft the right model to attract top talent and improve sales performance.
It’s a valuable 12-minute read, but you can skip to our key learnings if pressed for time, or chat to us directly for more information.
Ready? Let’s dive in.
Thomas Bill Revland, Co-Founder and Portfolio Chair, MonterroSome smaller startup companies can get away with not having commission models when they first start.
But when they grow and look to new markets, the consequence of not having sales commissions is very simple:
The best salespeople will not join you.
This guide distils insights from some of Monterro's sales experts:
Co-Founder and Portfolio Chair, Monterro
Thomas has extensive experience in the B2B software industry. He started off as an engineer and had several leading positions within engineering, sales, operations and as a CEO. He also has several board positions in Monterro’s portfolio companies.
CEO, Monterro
Gustav has over 20 years of experience working in the software sector. He was the founder and CEO of Netstar, COO and VP of Sales of Episerver (now Optimizely), and co-founder of Wiraya. He also has several board positions in Monterro’s portfolio companies. He’s an expert advisor in sales processes and sales commissions.
Sales & Marketing Lead in the Growth Excellence team, Monterro
Urban has a long background from being a leader in SaaS and tech companies. He is passionate about building high growth, scalable teams and profitable businesses. He has previously been CEO and heading sales and marketing at several tech companies for many years.
In the dynamic world of B2B SaaS, a flexible sales compensation structure is crucial.
It helps you:
And just to straighten out: commission should not be seen as a bonus, it’s a part of a sales salary.
Now, some companies simplify it by implementing fixed commission rates on all sales. To protect themselves from excessive costs, they also set a maximum limit on the commission a sales rep can earn.
This is (almost always) the wrong approach.
Why?
Because it can take away individual drive and incentives to sell, which will impact your company negatively. There’s also a risk that sales reps start offering exorbitant discounts to close large deals with longer contract lengths prioritizing a short-term pay-check. This negatively affects your ARR and locks customers into unfavorable agreements for your company. Lastly, it becomes more challenging to motivate sales reps to enter new markets or target new segments where it might be harder to sell initially, but vital for future growth.
Instead, set up a model so salespeople can overperform.
Setting variable sales compensations takes into account a wide range of different factors designed to get your salespeople incentivised to sell more of the right things, even as your business changes.
Gustav Lagercrantz, CEO, MonterroSales reps should be encouraged to earn big commissions. Because great sales mean great company revenue. That’s why I would never have an upper limitation of commission.
So, we know why a variable B2B SaaS sales compensation model is important.
Next up?
Let’s look at some of the existing models you can use…
OTE is the expected total earnings a salesperson will earn if the person reaches the sales goals.
For example, if a salesperson’s base salary is €60,000 and the on-target commission is €40,000, then the OTE is €100,000. If the salesperson closes 100% of the quota, they would make €100,000.
Using the OTE model creates a clear leverage effect in sales compensation. For example, in an 80/20 model, 50% overperformance on quota results in 110% of OTE, while in a 50/50 model, the same 50% overperformance would lead to 125% of OTE. However, the same principle applies in the opposite direction: 50% underperformance would reduce earnings to 90% and 75% of OTE, respectively, for each model.
This dynamic is what makes a higher commission percentage drive more motivation among salespeople.
When setting OTEs for your sales team, instead of starting with commission percentages, begin by setting sales quotas for each individual and team. The next step is to determine the split between fixed salary and commission. The pay mix and quota you choose should be based on a number of things, such as geography, experience, sales strategy, culture, direct or indirect sales. Your answer should align with your goals and ambitions as a business. But it should also align with your sales individuals and team.
OTE is a proven model to incentivize high performance, and you can use an accelerator that kicks in when a salesperson exceeds their quota (e.g. x2, x3). It serves as an incentive for overperformance, rewarding top performers with even higher earnings. The OTE model can also be adapted to various sales metrics, such as the total amount of sales bookings or the revenue billed throughout the year.
This flexibility allows organisations to align the compensation plan with their specific business objectives and sales priorities. It’s crucial that you are transparent on the model with your sales reps and that they sign an OTE agreement that includes the key terms of the model, as well as the individual expectations and commitments. Review it on a yearly basis.
For example, if a salesperson’s base salary is €60,000 and the on-target commission is €40,000, then the OTE is €100,000. If the salesperson closes 100% of the quota, they would make €100,000.
Using the OTE model creates a clear leverage effect in sales compensation.
For example, in an 80/20 model, 50% overperformance on quota results in 110% of OTE, while in a 50/50 model, the same 50% overperformance would lead to 125% of OTE.
However, the same principle applies in the opposite direction: 50% underperformance would reduce earnings to 90% and 75% of OTE, respectively, for each model.
This dynamic is what makes a higher commission percentage drive more motivation among salespeople.
When setting OTEs for your sales team, instead of starting with commission percentages, begin by setting sales quotas for each individual and team. The next step is to determine the split between fixed salary and commission. The pay mix and quota you choose should be based on a number of things, such as geography, experience, sales strategy, culture, direct or indirect sales. Your answer should align with your goals and ambitions as a business. But it should also align with your sales individuals and team.
An example: If your goal is rapid growth, you can use a higher commission focus, such as 40 base/60 commission or 30/70 as this will boost sales team incentives.w
This approach offers a variable commission based on the annual contract value (ACV).
Some businesses take this a level deeper and vary the commission rate based on product margin or an individual rep’s sales attainment too.
We strongly recommend you set up a policy that claws back commissions if a client cancels their deal.
This is a great way to ensure you don’t end up out of pocket…just make sure you’re transparent about the policy with your reps.
AN EXAMPLE:
% Commission per sale value
| € ACV | Market | Commission rate | Payable commission |
|---|---|---|---|
| €10,000 | Core market | 10% | €1,000 |
| €10,000 | Adjacent market | 15% | €1,500 |
| €10,000 | Expansion market | 20% | €2,000 |
We often get asked which sales compensation model to choose. The answer? It depends.
If your business has a simple sales model, a limited product range, and a small sales team with minimal marketing investment, a percentage-based compensation model can be easier to implement. However, as your organization grows, this model rarely reflects the true cost, or impact, of increased marketing efforts.
In the long run, we recommend companies transition to an OTE-based model. As sales operations expand and become more complex with multiple products, pricing structures, and markets - the OTE model offers far greater flexibility. It allows you to align incentives across teams and individuals more effectively, making it a more sustainable solution over time.
The compensations plans may change frequently, depending on the reps you hire and, ultimately, your business goals and strategy.
Here are the top seven things to consider:
Got sales reps with a lot of experience in your market? You can encourage them to make more sales with a higher commission rate to base salary split.
Inexperienced reps won’t be as confident making new sales quickly. This means you can have a more balanced split while they build their experience.
Thomas Bill Revland, Co-Founder and Portfolio Chair, Monterro“In countries like the US or the UK, finding a sales rep who doesn’t want a commission is a major red flag. The best reps in these regions are trained to perform best with high commissions. So if a rep doesn’t require one, it’s likely not a good salesperson.”
You need to consider that sales reps from different regions have different expectations when it comes to commission rates.
For example, in countries like the US and the UK, reps expect a high commission to salary split. This can be 50 base/50 commission up to 30/70. But in the Nordics, they’re used to a high salary to commission split so 60/40 or 70/30 is more acceptable.
If you want to increase growth in your current market or expand into a new one, you’re going to need one thing. New customers.
But new customers are harder to close. That means you’ll need to incentivise sales reps with a much higher variable (50/50, for example). If you’re breaking new ground you usually need to have a higher base salary to guarantee a certain compensation level.
Existing customers are easier to close. It’s why they’re usually handled by customer success teams, who deal with keeping them happy post-sale. This means a lower variable (80/20, for example) is more appropriate.
Don’t let this mean you de-prioritise existing customers. Especially with SaaS models, keeping customers and earning more from them is also crucial.
Closely follow Net Revenue Retention metrics (NRR) and encourage customer success teams to focus on your customer satisfaction and retention – which increases your business robustness.
Higher commissions work better for direct sales. Why? Because, with direct sales, a sales rep is heavily involved so higher commission incentivises them to put in more effort to the sale.
Indirect sales, such as channel sales, are dependent on selling through a third party, so the effort and earnings from a sale are shared. Because of this, lower commission rates for your reps is more appropriate.
If multiple people in your sales team contributed to a sale, should you offer a team compensation for everyone involved?
Some say yes. But team commissions can dilute individual efforts, potentially leading to uneven contribution levels. It’s why team commissions are unattractive for top sales performers.
Your commission structure should still prioritise individual commissions, even if it was a group effort to drive the sale. This makes sure that personal drive and accountability remain at the front of your reps’ minds.
If you have cross regional sales teams working on the same customers, it's crucial to design commission structures that clearly show how the revenue is split between the teams and reps.
For leadership roles like a VP of Sales, the quota should be less than the sum of their team's quotas.
This accounts for the likelihood of some reps within their team not meeting their targets.
Implementing layered quotas encourages a focus on team success while maintaining room for changes in individual performance.
This method ensures that sales leaders are motivated to support their team's overall success, not just individual achievements.
Urban Bucht, Sales & Marketing Lead in the Growth Excellence team, MonterroBe mindful not to create a “double bubble” in incentives.
Adding too many layers can result in overly generous payouts and misaligned motivation, especially in larger organizations.”
Transparency is vital to avoid mistrust and maintain motivation.
That’s true no matter how you decide to structure your B2B SaaS sales commission model. But while transparency sounds simple, in practice it’s a little more tricky.
Here are three common pitfalls you want to avoid:
Sometimes a salesperson stands to earn a disproportionately high commission. This is often due to a gigantic deal or one that closes much quicker than your standard deal, due to an executive relationship or similar with little sales effort.
Without a cap (or ‘Bluebird Clause’), this could lead to a huge payout which often increases the chances of the salesperson leaving the company post-deal with unfair commissions, or they put too much energy and time into chasing giant customers that might not even be your ideal customers.
Want to avoid this? Set up a Bluebird Clause but remember – you need crystal clear communication around such clauses to manage reps’ expectations.
No rep wants to find out about a Bluebird Clause after the deal has closed.
It’s crucial that you have guidelines and agreements that clearly state how the compensation plans, quotas, commissions, and accelerators are designed, for each individual. And the agreements need to be signed by the sales rep too. Without transparent communication, you will cause confusion and suspicion. Transparency also extends to changes in variable commission rates.
Regularly update your sales team on any changes to the commission structure or business goals. Involvement in these discussions will boost motivation, understanding, and morale.
Changes in sales territories or accounts can significantly impact potential earnings. This makes transparent policies and proactive communication about such changes vital. Failing to do this can drastically impact morale.
Gustav Lagercrantz, CEO, Monterro ABAt least once a year, you should be meeting your sales reps going over commission agreements. This creates a very formal commission framework with transparent rules and very concrete examples.”
Highly motivated, performance-driven sales reps will be drawn to companies where their efforts earn them more money.
If you want those people on your team (and you do), your model needs to cater for that.
So how can you create a model that attracts this talent?
Prioritising commission will attract ambitious salespeople that are driven to maximise their earnings and make sales quickly.
Right from recruitment, you need to clearly explain how performance impacts commission rates. This will ensure candidates understand their earning potential.
Balance your commission structure with comprehensive benefits and professional development opportunities. This will help you appeal to a broader range of candidates.
Provide new hires with a guaranteed portion of their target commission during their first six months (e.g., 60%) to ensure income stability while they get up to speed. Another option is to tie early-stage incentives to onboarding milestones or clearly defined enablement targets, which helps reduce ramp-up time and drives faster productivity.
Regularly compare your commission structure with competitors’ ones. This will ensure you offer a compelling package, attracting top talent to your team instead of theirs.
06 Key learnings
We're Monterro, a software growth investor that helps Nordic software companies hit their biggest growth goals.
It’s the best way to motivate sales reps to focus on the right things, at the right time in the fast-evolving B2B SaaS sector.
2Ideal salary-commission split, sales strategy, customer types, sales methods, and incentive schemes requiring frequent adjustments.
3It’s crucial that you have guidelines and agreements that clearly state how the compensation plans, quotas, commissions, and accelerators are designed, for each individual. And the agreements need to be signed by the sales rep too. This creates trust, reduces turnover, and sustains performance.
4Attract and retain top sales talent: The best way to do that is with competitive and transparent commission rates, along with comprehensive benefits and guarantees.
We're Monterro..... let's talk.
Monterro is a hands-on growth investor. We turn Nordic software companies into market leaders by contributing our time, experience, know-how, and networks. And yes, we provide capital too. In fact, we invest our own capital, so we are personally committed to our mutual success. Monterro is headquartered in Stockholm with offices in Oslo, Copenhagen, Helsinki, and a software development center in Hanoi.
