As much as we love sales commissions, we also appreciate strong sample bonus structures.
We’ll dive into four of our most widely adopted account executive (AE) bonus structures, but before we do, let’s first differentiate between bonus and commission.
Companies award bonuses, or a pre-determined amount of money, when a rep achieves a set goal. Sales commissions represent a percentage of the total revenue tied to a won deal.
In practice, we might see a company pay an AE a $2,000 bonus when they hit their monthly quota of $25,000. If the company paid commissions instead of bonuses, and if it took the rep three deals to hit $25K, the rep might earn 10% of the total revenue for each of the three deals.
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Additionally, in some cases, companies combine bonuses with commissions, like the Commission with Accelerators and Milestone Bonus plan, which you can explore and model in Compensation Hub.
But we’re not merging commissions and bonuses for today’s conversation. Instead, we’re focusing exclusively on sample bonus structures for AEs.
Below, we’ll guide you through the use cases and logistics of each one. Be sure to explore each sample bonus structure yourself in Compensation Hub.
- Milestone bonus
- Single rate bonus (Revenue)
- Single rate bonus (Quantity)
- Multiple rate bonus (Revenue)
Sample Bonus Structures for AEs
This compensation plan pays AEs a single milestone bonus once a rep hits quota. This plan offers a variable pay package with low financial risk from the lens of the company.
One thing to note about the milestone bonus compensation plan is that reps do not earn any incentive pay until they reach quota. They only earn the bonus upon hitting target.
A structure such as this encourages reps to consistently hit quota every month while protecting the business from inflated commissions. That’s because the maximum bonus payout is the pre-determined bonus amount.
Now, do we love this plan? Not particularly.
At QuotaPath, we prefer pairing a bonus with a tiered sales commission structure that promotes overperformance. Something like this one: Commission with Accelerators and Milestone Bonus plan.
Why don’t we love it? Because of the risk of sandbagging.
If a rep hits quota early in the month, they might sandbag deals until the next month. This enables them to secure the milestone bonus ahead of next month.
To model the milestone bonus with your own business inputs, use our ungated modeler.
With the revenue-based single rate bonus, the bonus rate remains the same regardless if the rep hits quota.
We like this one for two reasons. First, reps understand it. It’s easy to explain, and reps know how to make money. Second, this compensation structure allows for quick adjustments that can help steer selling behaviors. For instance, you could increase the rate to motivate reps to sell a specific product or de-motivate reps from selling one when trying to sunset a product.
To set your bonus rate:
- Figure out how many deals you want your reps to close during the quota period.
- Determine this by solving for how many deals your reps need to collectively close in order to reach the financial target.
- Find the applicable bonus for your quota period. For annual quotas, this number will match your annual variable set for OTE. If it’s quarterly, divide the annual bonus by 4, and if it’s monthly divide by 12.
Annual target: 10 deals per quarter
Annual bonus: $80K
Quarterly bonus: $20K
Bonus per deal: $2K
Under the revenue-based single-rate bonus, not to be confused with the quantity-based bonus below, the company pays out a flat bonus for every quota attainment point earned.
This sales bonus structure works great for sales teams with quotas that change over time or for those with “busy seasons” throughout the year.
Explore the Single rate bonus (Revenue) in our ungated modeler.
In addition to the single rate bonus revenue-based plan is the Single Rate Bonus (Quantity) bonus structure.
This one differs from the revenue one above by paying a flat bonus on every single deal regardless of quota attainment. We consider it the most basic bonus format and recommend implementing it when you have consistent contract values in place.
One thing to remember is that this plan does not account for deal discounts. That means that no matter how much or how little a rep discounts a deal, their bonus remains the same. As a result, we usually see teams discount more frequently because their variable remains intact.
In the plan pictured above, the quantity-based single rate bonus plan pays $2,500 on every deal.
Customize the Single Rate Bonus (Quantity) in Compensation Hub.
Multiple rate bonus (revenue)
We like this model because it rewards overperformance and gives your reps a reason to keep bringing in deals after passing goal.
Now, if you prefer to pay a commission rate versus a revenue-based bonus tied to attainment points, check out the Commission with Accelerators plan.
Thanks for talking sample bonus structures with us!
For more widely adopted compensation structures, check out Compensation Hub.
About Compensation Hub
Our newest (free) resource, Compensation Hub, invites Sales, RevOps, and Finance leaders to discover, compare, customize, and share compensation models. Strike the right balance between pay and performance to successfully align your compensation strategy to your business strategy.