Sales Commission Explained: What I Wish Someone Told Me 12 Years Ago

I see people asking about commission constantly and most answers are either super vague or overly complicated.

I've been managing sales teams for about 7 years now (started selling in 2012, moved into management in 2017), and the thing that still surprises me is how many people - both new hires and experienced reps - don't really understand how commission works. After leading sales teams at three different companies, I probably spend more time explaining commission structures than I should.

My biggest reality check came about 4 years ago when I was a sales manager at a growing tech company. We hired this guy from a big enterprise software company - solid resume, 8 years experience, came with great references. During his first commission review meeting, he was completely lost by our structure. Turns out his previous "sales" role was more account management with a straight salary plus annual bonus. He'd never actually worked on real commission despite being in sales for years.

That experience taught me that even experienced people can be clueless about commission, and I can't assume anyone knows how this stuff works. Over my career, I've hired about 80 reps, managed teams up to 15 people, and helped design commission plans for three different companies.

The thing is, I was just as confused when I started. Back in 2012, I took my first sales job thinking commission was just "extra money on top of salary" and had no idea it would become 60% of my income. I made pretty much every commission mistake possible before I figured it out.

Figured I'd write up what I wish someone had explained to me 12 years ago (and what I now explain to every new hire) because this stuff can make or break your experience in sales.

The Basic Idea (It's Actually Simple)

Commission = extra money based on what you sell. More sales = more money. That's literally it.

The confusing part is all the different ways companies structure it. Some give you a base salary plus commission. Others are commission-only. Some have complicated tier systems. But the core concept is always the same - sell more, earn more.

Why I'm Writing This (And Why You Should Care)

Let me tell you about the worst commission mistake I ever made, because it perfectly illustrates why this stuff matters.

Back in 2014, I was working at a software company and had just closed what I thought was a huge deal - $85K annual contract. I was calculating 5% commission in my head ($4,250) and already planning what I'd do with the money. Rent was due, I had credit card debt, and this commission was going to solve my problems.

Two months later, my commission check was $0. Zero dollars.

Turns out the customer had negotiated a 60-day trial period that I'd ignored in the fine print. No commission until they converted to paid. The deal fell through during the trial, and I got nothing. I had to borrow money from my parents to make rent that month.

Here's the thing that really got to me - my manager knew about the trial period. The commission plan mentioned it. But nobody had ever explained what it actually meant or how it would affect my paycheck. I just assumed "closed deal = commission" and learned the hard way that assumptions can be expensive.

Now as a manager, I see reps make different versions of the same mistake constantly. Just last month, one of my reps was confused why his commission was lower than expected. He didn't realize that deals under $15K get a different commission rate. Another rep has been waiting three months for commission on a big deal because he didn't understand our "commission paid after customer payment" policy.

The pattern is always the same - smart people making expensive assumptions about how commission works because nobody took the time to explain it properly.

That's why I'm breaking this down in detail. Because understanding commission isn't just about knowing the math - it's about protecting your financial future from the kind of mistakes that can really hurt.

The Main Types You'll Actually Encounter

Base Salary + Commission (Most Common)

You get a regular paycheck PLUS commission on top. This is what most legitimate sales jobs offer.

Example: $60K base + 4% commission

• Your base covers your bills
• Commission is extra money on top
• If you struggle with sales, you still get paid
• If you're good at sales, you make way more than base

Commission-Only (High Risk/Reward)

You only get paid when you sell. No sales = no money.

Example: 12% commission on everything you sell

• Higher commission rates since it's your only income
• Unlimited earning potential
• Also unlimited potential to make $0
• Usually for experienced reps or independent contractors

Tiered Commission (Rewards High Performers)

Commission rate goes up as you sell more.

Example:

• First $100K in sales: 3% commission
• Next $100K in sales: 5% commission
• Everything above $200K: 7% commission

Designed to motivate you to keep selling even after you hit initial targets.

When Do You Actually Get Paid? (This Is Huge)

This is probably the most important thing that nobody explains clearly.

Monthly: Most common. You get commission for last month's sales paid in the current month.

Quarterly: Commission calculated and paid every 3 months. Can mean waiting 3-4 months for your first check.

After customer pays: Some companies only pay commission after the customer actually pays their invoice. In B2B sales, this can mean waiting 30-90 days after the sale.

At contract signing: Best scenario - you get paid as soon as the deal is signed.

Real example from my experience: I once had a rep wait 4 months for commission because we paid quarterly and the customer was slow to pay. He was counting on that money and almost quit over it.

Terms You Need to Know (From Someone Who's Explained Them 100+ Times)

Quota: Your sales target. Hit it and good things happen. Miss it consistently and... you might want to update your resume.

OTE (On-Target Earnings): What you should make if you hit quota exactly. If someone says "$85K OTE," that's base + expected commission.

Commission Rate: The percentage you earn. 5% means you get $5 for every $100 you sell.

Draw: Advance on future commission. Company pays you $2K/month and deducts it from your commission later. Helpful for cash flow but can put you in debt if you don't sell enough.

Clawback: When they take back commission you already got paid, usually because a customer cancelled. Always sucks when it happens.

Commission Cap: Limit on how much commission you can earn. Personally, I think caps are terrible and would avoid any job with them.

The Commission Mistakes That Actually Cost Money

After managing teams for 7 years, here are the specific commission mistakes I see that actually hurt people financially:

The "I'll Figure It Out Later" Mistake

What happens: New hire doesn't ask about commission details, assumes they'll learn on the job.

‍Real cost: One of my reps lost $3,200 in commission because he didn't know about our minimum deal size requirement. He spent two months working small deals that didn't qualify.

‍How to avoid: Get commission examples during your interview. Ask them to walk through exactly what you'd earn on a $20K, $50K, and $100K deal.

The "Verbal Promise" Mistake

What happens: Manager makes verbal commitments about commission rates or timing that aren't in writing.

‍Real cost: Rep at my previous company was told verbally he'd get 6% commission. Written agreement said 4%. Guess which one the company honored? He lost about $8K that year.

‍How to avoid: Get everything in writing. If they promise something verbally, ask for it in an email.

The "Payment Timing" Mistake

What happens: Reps don't understand when commission actually gets paid and plan their finances incorrectly.

Real cost: I had a rep nearly lose his apartment because he thought commission was paid monthly but we paid quarterly. He went three months with no commission income.

‍How to avoid: Ask specifically when commission gets paid and what triggers payment (contract signing vs. customer payment).

The "Deal Structure" Mistake

What happens: Reps don't understand how different types of deals affect commission.

‍Real cost: Rep spent weeks working a $200K deal that turned out to be a "partner deal" with different commission rules. Made $2K instead of the $10K he expected.

‍How to avoid: Ask about different deal types and how they affect commission. Multi-year deals, partner deals, renewals, etc.

How to Not Get Screwed Over by Commission

The real commission problems happen after you get the job. Here's how to avoid getting screwed:

Track Everything Yourself

Why this matters: Company systems make mistakes, and those mistakes always seem to be in the company's favor.

‍What to do: Keep a simple spreadsheet with deal amount, close date, expected commission, and actual commission received. I've caught thousands of dollars in errors over the years.

‍Real example: One of my reps caught a $1,800 error because he tracked his own numbers. The company's system had miscategorized one of his deals.

Read Every Commission Statement

Why this matters: Most reps just look at the total and ignore the details. Big mistake.

‍What to do: Understand every line item. If something doesn't make sense, ask immediately. Don't wait until your next review.

‍Red flag: If your commission statements are confusing or have unexplained deductions, that's often intentional.

Know Your Commission Plan Cold

Why this matters: Commission plans can change, and they don't always tell you clearly.

‍What to do: Keep a copy of your commission agreement and refer to it when calculating expected commission. If there's a discrepancy, you have documentation.

‍Manager tip: I've seen companies try to change commission terms retroactively. Having your original agreement protects you.

Don't Spend Commission Before You Get It

Why this matters: Deals fall through, customers cancel, and commission calculations can be wrong.

‍What to do: Only spend commission money after it's actually in your bank account. I know it's tempting, but assumptions are expensive.

‍Personal story: I once spent $3,000 in anticipated commission on a vacation. The deal got pushed to the next quarter and I ended up with credit card debt.

Understand Your Company's Payment Cycle

Why this matters: Cash flow planning is crucial when a big chunk of your income is variable.

‍What to do: Know exactly when commission gets calculated and paid. If you're paid quarterly, plan for dry spells.

‍Survival tip: Keep at least 2-3 months of expenses saved for lean periods. Commission income can be unpredictable.

My Advice (From Someone Who's Managed 80+ Salespeople)

If You're New to Sales:

Start with base + commission at a company with good training and management. Don't try commission-only until you understand how sales actually works and have 6 months of expenses saved.

If You're Experienced:

Even if you think you know commission, make sure you understand the specific structure at any new company. I've seen enterprise reps struggle with startup commission plans and vice versa.

Bottom Line from a Sales Manager's Perspective

After 12 years in sales and 7 years managing teams, I've seen hundreds of people succeed and fail in commission-based roles. The ones who succeed understand their commission structure completely, ask the right questions upfront, and choose opportunities that match their experience level and financial situation.

The ones who struggle usually made assumptions, didn't ask enough questions during interviews, or picked a commission structure that didn't fit their risk tolerance.

Commission can be an excellent way to earn more money if you approach it strategically. Just make sure you understand exactly what you're getting into before you sign anything.

Happy to answer specific questions if anyone has them. After 12 years in this business, I've probably seen whatever situation you're wondering about.