Sales manager compensation plans

By Kelly O'Halloran • April, 2023 • 6 mins

purple background with copy sales manager comp plans to consider

In a previous blog, our Chief of Staff Graham Collins shared 5 sales compensation plan examples. This article included a sales manager compensation plan sample featuring a single commission rate that applies to all deals, regardless of team attainment. 

It’s perfect for a startup that just hired its first sales manager. The plan is logical, simple in nature, and makes room for new complexity within the plan as the organization grows.

Now, for teams looking to go beyond a single rate, we outline two more sales manager compensation plans to consider. But first, let’s review some terminology since the following compensation plan templates introduce new compensation levers.

Try QuotaPath for 30-days

Try the most collaborative solution to manage, track and payout variable compensation. Calculate commissions and pay your team accurately, and on time.

Sales manager comp plans definitions

Accelerator: Our first plan below includes accelerators. An accelerator is a commission tool that rewards salespeople with a higher commission rate for exceeding a certain sales quota or target. 

For example, a salesperson might earn a 10% commission on sales up to $100,000, but receive a 15% commission on sales above that amount. The higher commission rate is known as the accelerator, and its purpose is to incentivize salespeople to exceed their sales targets.

Attainment point bonus: In our attainment-point bonus compensation plan example below, sales managers earn a fixed dollar amount for every percentage point closer to the 100% target.

For example, if the bonus rate is $100, and the team reaches 95% of the goal attainment, the manager would earn a bonus of $9,500.

Buffer: Sales manager compensation plans usually include a buffer to ensure your manager is not held to the entire team’s performance. This measure accommodates team absences, underperformers, and overperformers. 

So, instead of setting the sales manager quota to 100% of the team quota, you would hold your managers to 80%-90% of their team’s collective quota. 

Cliff or commission floor: A cliff/commission floor in variable compensation requires the commissionable employee to earn a minimum amount of quota or revenue before being eligible for variable pay. We see cliffs used in conjunction with other commission structures, such as accelerators or tiers, to provide a balance between guaranteed income and incentivizing high performance.

While we don’t recommend cliffs for sales compensation plans at the rep level, we do at the leadership level. 

What does a sales manager position pay?

Next, let’s look at a few data points as far as sales manager salary and on-target earnings (OTE). 

Senior Sales Manager salaries

According to 2023 data from Bett’s Recruiting, senior-level sales managers in tech earn a salary between $140,000 and $200,000 annually. When factoring in commission potential, those numbers increased to $280,000 and $400,00 for total OTE. These numbers will vary by experience, region, and size of the company.

First-time Sales Manager salaries

The same report showed that first-time sales managers make a salary between $120,000 and $160,000.

“However, this number can vary based on experience, company size, and even location in some cases. For example, an SM with more than three years of experience will see $140,000 – $200,000 in almost any tech hub region” — Bett’s Recruiting. 

Pay mix

Pay mix refers to the ratio of base salary and variable pay that makes up an OTE. This is usually listed as a percentage breakdown with a base salary listed first.

For sales managers, the two most commonly adopted pay mixes are 50/50 or 60/40. 

Create Compensation Plans with confidence

RevOps, sales leaders, and finance teams use our free tool to ensure reps’ on-target earnings and quotas line up with industry standards. Customize plans with accelerators, bonuses, and more, by adjusting 9 variables.

Sales manager compensation plan: Commission with Accelerator

One of the most widely implemented sales manager compensation plans is this structure, Commission with Accelerator. 

Under this commission plan, the manager earns a fixed commission rate on every sale by the manager’s team. Then, once the team surpasses 100% of its quota within the quota period, the manager’s commission rate increases for every subsequent deal.

Note: the commission rate should change with the size of the team. Meaning, as hiring increases, someone departs, or someone is promoted, the commission rate should fluctuate with those changes. 

Typically, leadership adjusts the commission rate on a monthly or quarterly basis to account for team changes. Failing to adjust the rate accordingly can significantly impact the manager’s earning potential.

Lastly, consider adding a “cliff” to this plan. A cliff or a commission floor ensures the sales manager does not receive a commission. In the example below, the cliff is cleared after the team achieves 50% of the target.

Sales manager compensation plan example: Accelerators

  • Commission Tiers:
    0-100%: Base rate: 3.1%
    100%+: 1*5 base rate 4.63% (non-retro)
  • Annual OTE: $200,000
  • Base:variable: $100,000 / $100,000
  • Pay mix ratio: 50:50
  • Annualized Team Quota: $3.6M Annually
  • Quarterly Team Quota: $900,000
  • Manager Buffer: 90%
  • Manager Quota: $3.24M Annually

Sales Manager Compensation Plan: Bonus

Next up is the bonus-based sales manager compensation plan. This structure pays a pre-determined bonus for each attainment point tied to the manager’s team’s total quota attainment progress. 

It’s like the Single Rate Bonus Plan for account executives but for leadership.

Under this plan, the Sales Manager’s bonus percentage is equivalent to their team’s quota attainment percentage. For example, if the team hits 93% of the quota, the Sales Manager will earn 93% of their bonus (at $250 per percentage point). That’s regardless of the size of their quota.

Like our other comp plan template above, this structure includes a manager buffer of 90%. 

However, with this sales leadership compensation plan, the bonus for managers stays the same regardless of team size. As the team grows or scales back, the quota may change, but the per-attainment bonus remains the same.

Sales manager compensation plan example: Bonus

  • Single-rate bonus: $250 per percentage point of attainment
  • Annual OTE: $200,000
  • Base:variable: $100,000 / $100,000
  • Pay mix ratio: 50:50
  • Rep Quota: 150,000 Quarterly
  • Annualized Quota amount: $3.6M Annually
  • Quarterly Team Quota: $900,000
  • Manager Buffer: 90%
  • Manager Quota: $810,000 Quarterly
  • Manager Quota: $3.24M Annually

Which plan should you use?

We can’t decide for you, but we do have some pros and cons to each plan. 

The first plan with accelerators includes a fixed cost of sales and is easy to understand. 

However, because the plan fluctuates with the team, it will require changes throughout the year. Additionally, this plan can affect earnings potential if it remains unchanged and may send your manager in a hurry to hire to maximize earnings potential. Because, in theory, the more people the manager has on their team, the higher the manager can make.

Meanwhile, the sales manager bonus structure promotes consistent earnings across periods and can account for high variability on the team. But, your leader may push back against hiring plans as it benefits them most when the team is smaller. This plan is also a bit more complicated to understand how individual deals impact earnings. 

Compensation resources

For additional compensation plan templates, visit Compensation Hub. This free and ungated resource includes 20 of the most-trusted comp plan templates. With 9 adjustable variables, build a plan aligned and fit to your business. 

When you’re ready, send the plan for review internally, then save it directly in QuotaPath to kick off a 30-day trial of our automated commission tracking and sales compensation management solution. Sync your CRM in a few steps and eliminate the need for manual tracking. 

We’ve found our most successful customers have between 20 and 250 employees with plans to grow, that use a CRM, like HubSpot and Salesforce, to track deal data, and that are looking for an easier way to manage commissions. Is that you? Start a free trial today.  

Updated on April, 2023

Leadership
Leadership

10 things we learned from “How to adjust your sales motion to meet today’s buyer”

Tech layoffs are increasing while sales win rates are decreasing. Sales leaders from around tech have reported the lowest outbound conversion rates they’ve ever seen, and suddenly, chief financial officers of $1B companies are showing up on discovery calls.

pavilion webinar, "how to adjust your sales motion to meet today's buyer"