Stop Paying for Attendance: How to Design a Sales Commission Scheme That Drives Results

The Commission Problem

Your sales team is making good money. They’re hitting their targets. But when you look closer, you realize you’re paying them for being present, not for performance. The top performers get the same commission rate as average performers. The team is comfortable, but you’re not getting the growth you need.

At MMC Financial Planning, we’ve helped dozens of Malaysian SMEs redesign their sales commission structures. The difference between a good commission scheme and a great one is the difference between a comfortable sales team and a high-performing one. Here’s how to design a commission structure that actually drives results.

Why Most Commission Schemes Fail

Traditional commission structures often fail because they:

The Principles of Effective Commission Design

Principle 1: Align Incentives with Business Goals

Your commission scheme should drive behaviors that support your business objectives.

Principle 2: Create Clear Performance Tiers

Different performance levels should earn different commission rates. This motivates improvement and rewards excellence.

Principle 3: Balance Individual and Team Incentives

Individual performance drives results, but team alignment drives company success.

Hybrid Approach:

Example Structure:

Individual Commission: 6% of personal sales
Team Bonus: 2% of personal sales if team hits target
Company Bonus: 1% of personal sales if company hits target

Total Potential: 9% (if all targets met)

Benefits:

• Individual accountability maintained
• Team collaboration encouraged
• Company alignment created
• Balanced motivation

Common Commission Structures and When to Use Them

Structure 1: Straight Commission

How It Works:

• Fixed percentage of all sales
• No base salary (or very low base)
• All compensation is variable

Example:

• 8% commission on all sales
• No base salary
• Salesperson earns: Sales × 8%

Best For:

• High-volume, transactional sales
• Experienced sales teams
• Businesses with variable demand
• Low-cost products/services

Pros:

• Low fixed costs
• High motivation (eat what you kill)
• Easy to understand
• Scales with revenue

Cons:

• High risk for salespeople
• Difficult to attract talent
• Can encourage short-term thinking
• No security for sales team

Structure 2: Base Salary + Commission

How It Works:

• Fixed base salary
• Commission on top of base
• Lower commission rate than straight commission

Example:

• Base Salary: RM5,000/month
• Commission: 3% on all sales
• Salesperson earns: RM5,000 + (Sales × 3%)

Best For:

• Most B2B sales environments
• Complex, consultative sales
• Businesses needing stability
• Building long-term relationships

Pros:

• Attracts better talent
• Provides security
• Supports relationship building
• Reduces turnover

Cons:

• Higher fixed costs
• Can create complacency
• Need to manage underperformers
• More complex to administer

Structure 3: Tiered Commission with Accelerators

How It Works:

• Base commission rate
• Higher rates for exceeding targets
• Progressive accelerators for top performance

Example:

• 0-80% quota: 3% commission
• 80-100% quota: 5% commission
• 100-125% quota: 7% commission
• 125%+ quota: 10% commission + bonus

Best For:

• Performance-driven cultures
• Businesses with clear targets
• Motivating top performers
• Scaling sales teams

Pros:

• Rewards excellence
• Motivates improvement
• Clear performance expectations
• Differentiates top performers

Cons:

• Can demotivate low performers
• Requires accurate quota setting
• More complex calculations
• Need to manage expectations

Structure 4: Profit-Based Commission

How It Works:

• Commission based on gross margin or profit
• Rewards selling high-margin products
• Penalizes excessive discounting

Example:

• Base: 2% of revenue
• Margin Bonus: +1% for sales above 40% margin
• Discount Penalty: -0.5% for discounts >15%

Best For:

• Profit-focused businesses
• Product portfolios with varying margins
• Businesses struggling with discounting
• Long-term profitability goals

Pros:

• Aligns with profitability
• Rewards profitable behavior
• Reduces discounting
• Better margin management

Cons:

• More complex to calculate
• Requires margin visibility
• Can reduce sales volume
• Harder for sales team to understand

Designing Your Commission Scheme: Step-by-Step

Step 1: Define Your Objectives

Step 2: Analyze Current Performance

Step 3: Design the Structure

Step 4: Model and Test

Create Scenarios:

Test Questions:

• Is compensation competitive at each level?
• Does it motivate the right behaviors?
• Is it sustainable for the business?
• Will top performers be rewarded appropriately?
• Will it attract and retain talent?

Step 5: Communicate and Implement

Common Mistakes to Avoid

Real-World Example: The Transformation

The MMC Approach to Commission Design

At MMC Financial Planning, we help Malaysian SMEs design commission structures that drive results:

Next Steps: Design Your High-Performance Commission Scheme

A well-designed commission scheme is one of the most powerful tools for driving sales performance. Here’s how to get started:

This Week

1. Assess Current Structure: Is it driving the right behaviors?
2. Analyze Performance Data: What’s working and what’s not?
3. Define Objectives: What do you want the structure to achieve?
4. Benchmark: Compare to industry standards

This Month

1. Design New Structure: Build model based on objectives
2. Model Scenarios: Test at different performance levels
3. Get Input: Involve sales team in design process
4. Plan Rollout: Develop communication and implementation plan

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Remember: A great commission scheme doesn’t just pay people—it motivates them. The difference between a good sales team and a great one is often the difference between a mediocre commission structure and an exceptional one.

Get Help Designing Your Commission Scheme

Learn About Incentive Performance Frameworks