10 Questions to ask before you set a sales commission structure in your SaaS business

When figuring out how to pay a salesperson in a SaaS business, it’s tempting to skip straight to the numbers.

Should you offer a 10% commission on ARR? What’s the standard rate? What do other SaaS companies do?

I get asked these questions all the time — and honestly, I used to jump right into solutions. But over time, I’ve realised that you can’t design a good commission structure without asking the much bigger questions first.

The truth is, there isn’t a one-size-fits-all commission plan. What works when you’re closing £500-a-month customers doesn’t work when you’re negotiating £100k enterprise contracts. The right plan will depend on where your business is, what you're selling, how you’re selling it, and what behaviour you want to incentivise.

So, rather than dive straight into percentages and payout models, I usually start with a series of questions, and yes, it’s a long list. I sent this to someone recently and realised it’s probably easier to share these in a post because they’re useful for anyone thinking about this.

Here are the key questions I ask founders (and myself) before recommending a commission structure. If you can answer these, you’re already halfway to figuring out what will work for you.

1. What’s your Average Contract Value (ACV)?

Are you selling something that’s £1,000 a year, or £100,000 a year?

Your typical deal's size will shape the commission percentage that makes sense. Higher deal sizes often mean lower percentages but bigger payouts. And if your ACV is low, you can’t afford to give away 20% in commission on every sale.

2. How long is your sales cycle?

Does it take a week or a year to close a deal?

If sales are fast, commissions can be simpler and more volume-driven. But if you’re selling to enterprise clients and the sales cycle is six months long, you may need to consider higher OTEs (on-target earnings) to keep reps motivated through the long haul.

3. Are you focusing on ARR or MRR?

Do you want customers to pay a year upfront (ARR), or is it monthly rolling (MRR)?

This is crucial because you might want to pay a higher commission on annual deals to encourage upfront cash flow. Or maybe you’re okay with monthly, but then you need to consider whether you’re only paying on the first month, first year, or as long as they stay.

4. What parts of the customer journey will the sales rep handle?

Are they just closing new business, or are they expected to manage renewals, upsells, cross-sells, and retention too?

Some companies expect salespeople to hand off to Customer Success once the deal is done. Others want full-cycle reps who do everything. The more responsibility you give them, the more their commission needs to reflect that complexity.

5. How much revenue do you expect this person to bring in?

Are they expected to own the whole sales cycle — prospecting, demos, closing — or will marketing and inbound leads feed them a pipeline?

If they’re sourcing all their own leads, they’ll expect to be paid more for that effort. If the founder is still closing big deals for now, then the sales rep’s role — and how they’re compensated — might look very different.

6. Are you prioritising growth, profitability, or a bit of both?

If you’re trying to grow fast and take market share, you may need to pay higher commissions to motivate people. Yes, it’ll eat into your margins — but that’s the cost of scaling.

If you’re focused on profitability, you’ll need to balance commissions carefully so you don’t blow your budget but keep reps motivated.

7. What are your ideal On-Target Earnings (OTE)?

If their base salary is £50k, do you want them to earn £100k if they hit the target?

Most SaaS businesses aim for something like a 50/50 or 60/40 split between base salary and commission — but this can vary based on deal size and complexity.

8. Do you want accelerators for overperformance?

If they smash their target, do you want to reward that with a higher commission rate (e.g., 15% instead of 10%)?

Accelerators are a great way to drive top performers to surpass their quota, but they must be set at the right level so you’re not accidentally giving away too much if they hit a couple of big deals.

9. Will there be clawbacks if clients churn?

If a customer cancels within the first 3–6 months, will you take back part of the commission?

This is a big one if you’re worried about reps closing bad-fit customers just to hit target. You can structure it so they only keep the full commission if the client sticks around past a certain point.

10. How experienced is the salesperson, and what are they expecting to earn?

Are you hiring someone senior or someone more junior who needs more structure and a higher base to start?

Someone with years of experience in SaaS sales is probably expecting a certain level of OTE and commission percentage, and if you’re way below that, you’ll struggle to attract (or keep) them.

Why this matters

These questions aren’t just for me to figure out what commission plan to recommend — they’re for you to make sure you know what kind of behaviour you want to drive, what makes sense for your business right now, and what’s sustainable.

Because the best commission plan isn’t just about percentages — it’s about alignment. If your sales team is incentivised to close deals that are bad for the business (or close deals at any cost just to hit target), everyone loses — including them when churn kicks in, and you start cutting roles.