Software sales reps who earn astronomical numbers often do it through commissions earnings rather than a base salary. They crush their quota and reap the benefits.
Though each company in the software industry offers different compensation structures to their salespeople, there are some industry commission averages and rules of thumb regarding the commission structure, which we’ll share in this article.
Knowing the averages can help you tell if your company is being fair in its offering and give you data to back up any compensation plan negotiations.
Average Software Sales Commission
According to Glassdoor’s salary data, the average software sales representative earns $28,334/yr in commission, on top of their $72,023/yr base salary. The commission might be inflated because it includes cash bonuses as well, but those are less common forms of compensation, so its effect could be negligible.
This almost 3:1 ratio of base salary to commission suggests that the majority of reps, at least in this dataset, are failing to hit quota. However, that’s only true if we hold that most of the companies in this dataset are following the best practice of keeping base salary to on-quota commission equal, at 1:1. That means when reps hit quota they should earn a commission equal to their base for that period.
For a wider investigation, here are the average commissions of different types of software reps:
- Account Executive Commission: $28,480/yr.
- Business Development Rep Commission: $24,684/yr.
- Software Sales Manager Commission: $26,703/yr.
To zoom in a bit, let’s look at what reps from some of the top software companies are earning for commission:
- IBM Sales Manager Commission: $117,531/yr.
- Oracle BDR Commission: $20,944/yr.
- Dell Tech Account Executive Commission: $71,131/yr
Salesforce, selling one of the best CRMs around, pays its Account Executives an average of about $77,000 in commission to salaries of about $80,000 bringing — close to that golden 1:1 ratio:
SaaS Sales Commission Agreement Template
Commission agreements are the documents a manager will give to their sales rep outlining the structure of a period’s commission plan. It often includes information about the commission rates at different percentages of quota attainment, the products in play, the agreement’s duration, and other pertinent details like what will happen if the employee is terminated. Below we’ll share two of the best commission agreement templates for software salespeople.
Generic SaaS Sales Commission Agreement Template
PandaDoc has a commission agreement template that works for almost any tech sales position. It includes sections for commission, base salary, overtime, commission structure, and more. This is good to use if you’re signing on a new software sales rep since it has other sections like vacation and time-off agreements.
Software Sales Manager Commission Agreement Template
QCommission has a detailed commission agreement template specifically for SaaS sales managers. It includes commission plans for the manager’s direct sales as well as sales made by the sales reps they are managing. This can be used as a good base agreement for software salespeople other than managers — just erase a few of the manager-specific sections.
Software Sales Commission Rates
Tech sales commission rates vary from company to company. The industry average hovers around 10% of the annual contract value (ACV) of the closed deal. That means if over a year a sales rep closes $500,000 in ACV they’ll earn a total commission payout of $50,000 for that year.
Other publications and surveys state other numbers from their findings, but the software sales commission rate range is generally 8-12% ACV. For instance, For Entrepreneurs’ survey of 305 SaaS companies found a median commission rate of 9% of the ACV. The report also has interesting info on things like renewal commission, which sits at 2% and upsell commission (8%).
Sometimes companies will increase the commission rate once a rep surpasses quota, thereby encouraging them to reach it, and keeping them motivated to keep climbing once they’ve hit it.
For example, say a rep’s commission rate is 10% before they reach quota. Then, for every dollar closed above it in ACV, they then earn 20%. Perhaps at 150% of quota, the rep earns 30% commission. In short, the accelerator range is where riches are made.
Quota Minimum for Commission
Some businesses will pay their sales reps commission only after they reach a certain percentage of their quota. I’ve seen this set at 60% on a BDR’s commission plan. If the rep failed to book at least 24 meetings of their 40 meetings quarterly quota, they’d be ineligible for commission.
Software Sales Commission Structure
Although sales commission structures differ from company to company in the software industry, there are some industry norms that can help you better understand when and how you’ll be paid.
Here are the rules of thumb for software sales commission structures:
- 1:1 Base: Commission Ratio: A rep’s on-target earnings should be 50% commission and 50% base salary. You’ll find this in the majority of SaaS companies. This provides a nice level of security for the reps without sacrificing much incentive to close deals.
- Commissions Come From Mainly New Subscribers: Most software businesses give their reps commission only if they book net new revenue for a product. Even if an AE is brought into a meeting with a Customer Success Rep to upsell, the CSM will likely get the payout; they're the one who’s nurtured the relationship to this point.
- If Eligible for Upsells, Pay Commission on Only Expansion Revenue: If AEs are responsible for upselling current clients, only pay them a commission on the new ACV above their current rate. If their ACV jumped from $100,000 to $150,000 because the client wants the premium package, the AE should get a commission on the 50k.
- Revenue Quotas Are 5X On-Target Earnings: OTE is a rep’s base salary plus commission if they hit quota. So, a rep with an OTE of $100,000/yr should have an annual quota of $500,000. Likely it’ll be broken into quarters, so $125,000 every three months.
- They Rarely Include Discount Privileges: Software sales commission structures rarely allow for reps to offer discounts, especially newer reps. Sometimes Enterprise AEs and VPs will have the authority to offer small ones like 10-15%, often because they have the know-how of when it’s okay to offer one and because they deal with large prospects.
A Business Development Representative on the other hand will have a different commission structure since they’re paid commission on sales opportunities created rather than net new revenue closed. Their quotas are often anywhere from 10-20 held meetings a month, depending on the size of their lead pool and the demand for the software.
Aside from the unique quota type, the structures likely still have the 1:1 base-commission ratio, although 60/40 base-commission is also popular.
Sales Commission for Professional Services vs Software
On average, sales commissions don’t differ too much between professional services sales and tech sales. Sales professionals in both industries earn anywhere from $23,000 to $29,000 per year from commission alone.
Here are some average commissions for different professional service sales jobs:
- Law Firm Sales Consultant: Average commission of $27,730/yr.
- Medical Sales Representative: Average commission of $27,523/yr.
- Consulting Sales Representative: Average commission of $25,840.
However, the tech and software industries are known for having the most upside in terms of commission you can earn. It’s quite common to see software sales representatives earning in the six figures.
Bottom Line: Software Sales Commission
Software sales commission rates usually fall between 8%-12%, and the average sales rep can expect to earn around $27,000 of commission in any given year. But, for those who hit and surpass the quota, you can expect to earn a lot more than that. Dell’s AEs are making about $70,000 in commission, plus their base salaries.
If tech sales sounds like the right gig for you, head over to the Salestrax job board where you can search for jobs with the best software companies around.