How sales bonus structures actually work (with examples)
A plan usually defines a target bonus (sometimes called “On‑Target Earnings”, “OTE variable”, or “incentive target”). This is the amount you earn for hitting 100% of your goal. Example: base £50,000 and target bonus £10,000 means the business expects your total cash to be ~£60,000 when you’re on target.
The target bonus is what makes different plans comparable. If two plans use different measures (revenue vs margin), comparing the target bonus at 100% is still meaningful.
Common measures are:
- Revenue (simple, but can reward low margin deals)
- Gross margin (aligns incentives with profitability)
- Units / activity (often for inside sales or operational roles)
- Quota attainment (a normalized score: actual ÷ quota)
Whatever the measure is, you want two things: a clear definition (what counts, when, and for whom) and an obvious way to compute progress.
The payout curve maps performance to payout. It can be:
- Linear: payout increases evenly (simple and predictable).
- Threshold + ramp: nothing until you pass a minimum (e.g., 80%), then it ramps.
- Accelerated: above 100%, payout increases faster (rewards over‑performance).
- Tiered: different rates in bands (0–80%, 80–100%, 100–120%, etc.).
A threshold is the minimum performance needed to start earning. A floor is the same idea but often used when partial credit exists. A “cliff” is when payout jumps suddenly (e.g., 0 until 80%, then 50% payout at 80%).
Cliffs create gaming: reps focus on getting to the cliff even if it harms the business. If your plan has cliffs, make sure the behaviour is intended.
An accelerator is a higher payout rate above a point, often 100%. Example: 1× rate up to 100%, then 1.5× above 100%. That means over‑performance is rewarded disproportionately.
Accelerators are powerful when the company has strong unit economics (each extra deal is very profitable) or when they want to push reps to stretch. But if accelerators are too high, they can blow up budget.
A cap limits payout, e.g., “maximum 200% of target”. A floor guarantees a minimum, sometimes used for ramping new hires. Caps protect budget but can demotivate top performers (“why keep selling if I’m capped?”). A common compromise is a soft cap (reduced rate above a point) instead of a hard stop.
A SPIFF is a short‑term bonus for a specific behaviour (sell a product, book meetings, renew accounts). A kicker is an extra multiplier for hitting a strategic objective (e.g., sell multi‑year contracts).
The trap: stacking too many one‑offs makes the plan unreadable. If a rep can’t explain their plan in 60 seconds, your plan will create disputes.
Assume:
- Target bonus: £10,000 at 100% attainment
- Threshold: 80% (below that, payout is 0)
- 80–100% band: pays linearly up to 100% payout
- Above 100%: 1.5× accelerator
- Cap: 200% payout
If you finish the quarter at 90% attainment, you’re halfway between 80% and 100%. That means you earn about 50% of target → £5,000.
If you finish at 120% attainment: you earn 100% payout for the first 100% plus accelerated payout for the extra 20%. Extra 20% × 1.5 = 30% more payout. Total payout ≈ 130% of target → £13,000.
This is why “120% attainment” can pay more than 1.2× target: the accelerator changes the slope of the curve.
- Can you compute payout from inputs with no ambiguity?
- Does the curve reward the behaviour you actually want?
- Is there a budget control mechanism (cap, reduced rate, or both)?
- Are edge cases defined (returns, cancellations, crediting rules)?
- Can a rep explain it in under a minute?
Want to sanity‑check your numbers? Use the calculators below to test different curves and scenarios.
Sales Bonus Calculator • Commission Calculator • Annual Bonus Estimator