Designing a Commission Plan for Your First Sales Hire

Decide each one deliberately:

1. Pay mix: how much of on-target earnings is base and how much is variable. Higher variable pay pushes the rep to close, but a first hire in an unproven process may need more base for stability.
2. Quota: the annual or quarterly revenue target that corresponds to full variable pay.
3. Commission rate: the share of each deal paid, which follows from variable pay divided by quota.
4. Ramp: how quota and pay work in the first months while pipeline builds.
5. Credit rules: what counts as closed, which revenue is commissionable, and how renewals and multi-year deals count.
6. Payment timing: when commissions are earned and when they're paid, and what happens to them if the customer doesn't pay.

Write a one-page summary of each in plain language before drafting the formal plan.

Work from on-target earnings and the revenue the rep can realistically close.

Say the first rep's on-target earnings are $150,000, split evenly between base and variable. In this example, variable pay is $75,000. In this example, a quota of $600,000 in new annual contract value gives a commission rate of $75,000 divided by $600,000, or 12.5 percent. In this example, a rep at half of quota earns roughly $37,500 in commission, and one at 150 percent earns about $112,500 if there's no cap.

Then check the plan from the company's side. What does that rep's total cost look like at low, target and high results, and does the revenue from the target case cover it with room for margin? If the plan only works when the rep exceeds target, the quota or the pay is off. Check the quota against what a founder or earlier seller could actually close, since a quota nobody can reach breeds resentment.

Each is a choice with tradeoffs:

• Ramp: a new rep can't close in month one. Common approaches are a guaranteed portion of variable pay for a limited period, or a reduced quota that steps up. Both cost you money, so budget for them and set an end date.
• Accelerators: a higher rate above quota rewards top performance. For a first hire, keep it simple or skip it until you know what strong performance looks like.
• Caps: limiting earnings protects you from windfalls but frustrates strong reps. Most teams avoid caps on new business, or set them high.
• Clawbacks: rules for recovering commission if a customer cancels or doesn't pay. If you include them, define the period and the conditions clearly, and have counsel review them.

Make sure the ramp period you pay for matches the ramp expectations you set in the new rep's onboarding plan.

Put the agreement in a short document the rep signs or acknowledges before starting. Include:

• Base salary, target variable pay and the period the plan covers.
• Quota and how it's measured.
• The commission rate or table, with an example calculation.
• Definitions: what's a closed deal, what revenue is commissionable, how discounts and renewals count.
• Ramp terms and their end date.
• When commissions are earned, when they're paid, and what happens if the rep leaves.
• How and when the plan can change, with notice.

Include worked examples in the plan itself, so there's no room for competing interpretations. Ask an employment attorney to review it, since rules about commission payment, final pay and plan changes differ by location. Don't rely on a template you found online.

Early on, a spreadsheet fed by your CRM's closed-won report is enough. Reconcile it monthly with finance and share the calculation with the rep, so they can check it against their own records. Disputes are rarer when the math is visible.

As the team grows, commission software helps. QuotaPath or CaptivateIQ, for example, can calculate payouts from CRM data and show reps their earnings, though you should confirm in a demo that each supports your plan rules. See the comparison of commission tools to think through the choice.

Finally, review the plan after two quarters. Look at attainment, cost of sales and whether the rep's behavior matches what you intended. Plan changes should apply going forward with notice, and the timing of the first hire itself is covered in when to hire your first sales rep.