The Sales Commission Dictionary

This lexicon is based on our years of experience in working with clients from a variety of industries to compute millions of Dollars in Commissions. We attempted to provide credit to such sources whenever possible. If you believe we are incorrect about a term or have failed to give credit to the creator of a definition, please contact us and we will rectify the record. We hope you like this vocabulary and find it useful. 

Dictionary of Sales Commission Terms 

Before you start reading further, we must inform you that the definitions mentioned here are written to the best of our judgment and may be wrong based on the context, region, and industry.

Accelerator 

A higher commission rate raises a representative’s compensation in comparison to what she would have received on her standard commission rate. Accelerators are used to recognize and reward exceptional performance. They usually kick in once a salesperson has met his or her quota. 

• Example: Jennifer will earn $10,000 if she meets her quota of $100,000, implying that her basic commission rate is 10%. When Jennifer meets her quota, her commission rate increases to 12 percent as an added incentive to keep up her excellent performance. 
• Also known as: ramped rate, kicker 

Achievement 

A measure of a sales representative’s performance about her quota. Actual sales performance is divided by quota to determine achievement as a percentage. 

• Example Sarah sells $60,000 against a quota of $80,000. As a result, her success rate is 75%. 

• Also known as accomplishment 

Active User 

Any user who interacts with a business over a set length of time is considered an “active” user. 

Agent 

A sales agent is a self-employed salesman who is recruited by one or more businesses to market their products or services and enables the signing of sales contracts between the business and its consumers. 

Analytics 

Analytics, often known as sales analytics, refers to the tools and methods used to gather, monitor, manage, and analyze sales data. It assists the sales team in making educated judgments regarding prospects and customers, product lines, market potential, and sales team performance. 

Annual Bonus 

An annual bonus is an amount of money provided to workers each year in addition to their base wage. It may or may not be connected to an employee’s performance. Some organizations, for example, provide a percentage of the overall salary as a bonus (which changes depending on the employee’s performance), whilst others award a fixed bonus each year. 

Annual wage adjustment 

An annual pay adjustment is a yearly increase or decrease in salaries based on a certain plan formula. 

ASC 606 Standard 

A revenue recognition standard, often known as an accounting standard. This standard specifies that revenue should be recognized when the contact between a customer and a firm is satisfied, i.e. when a company fulfills its performance duty by delivering a promised item or service to a client. 

At-risk pay 

Performance-based pay is a type of pay that is dependent on how well you perform. It is not guaranteed pay in the way that a salary would be. The majority of sales compensation plans include an “at-risk” component depending on performance. This risk component is paid in addition to the base salary. 

• Other names for incentive compensation, variable compensation, and pay-for-performance. 

Attainment 

 A measure of a sales representative’s performance about his quota. Attainment is measured as a percentage by dividing actual sales performance by quota. 

• For instance, Rico sells $60,000 against a quota of $80,000. As a result, his achievement rate is 75%. 

• Also known as accomplishment 

Base Salary/Base Salary 

Base pay, often known as base salary, is the minimum payment a person receives based on their job posting and credentials. The sum is determined by Human Resources rules and is exclusive of any other kinds of remuneration, perks, or incentives. 

Best Practices 

Best practices are tried-and-true processes or approaches that provide outcomes that are superior to those obtained by other means and are sometimes referred to as the standard. These practices are followed by salespeople and sales managers to achieve their aims and objectives in the best way possible. 

Bonus 

 A sales bonus is an incentive payment that is often triggered by a yes/no decision (e.g., did the sales rep achieve a threshold? If so, pay a bonus). This is not the same as a commission, which is paid progressively when greater levels of performance are attained (i.e. a rep may make a commission on each deal). It’s crucial to remember that not all sales compensation experts use the same terminology. Some sales compensation professionals use the terms “bonus” and “commission” interchangeably. 

Cap 

 A cap is an upper limit or limitation set on the amount of money that may be spent. It is the highest financial remuneration an employee may earn in a specific period in sales. 

Channel 

A sales channel is a means used to distribute or sell items or services to the market. A company’s products or services might be distributed or sold through direct (website, salesforce, etc.) or indirect (brokers/agents, partners, etc.) channels. 

Clawback 

A clawback occurs when a company reverses or recovers a previously provided reward. Clawbacks typically occur when a consumer returns a product or cancels a contract on which a sales representative has been paid. They can, however, develop merely because there were flaws in the initial computation (e.g., the sales amount was entered incorrectly). 

Coaching 

 Coaching, sometimes known as sales coaching, is an important component of performance management. It is the process of increasing a team’s or an individual’s performance by inspiring, training, and assisting salespeople to reach their goals. The ultimate objective is to improve KPIs (key performance indicators) like revenue growth and customer satisfaction. 

Commission per sale 

The most basic of all sales compensation plans. This sort of plan pays a basic percentage of each transaction, so a sales representative shares a piece of the money generated for the firm. These plans, unlike On-Target Commission programs, do not have a quota attached to them. These are often known as flat commission programs or unit rate arrangements. 

•As an example, residential real estate brokers who get paid 3% of each house sale are on commission-per-sale arrangements. 

 Commission rate  

 A sales commission rate links a salesperson’s success to monetary remuneration. It is often fixed and stated as a percentage. 

For example, if you establish a 20% sales commission rate and a salesperson sells $10,000 in items in a month, you must pay him/her a $2000 commission. 

Commission Tracking Software  

Also known as Incentive Compensation Management Software is software that automates the process of computing sales compensation and tracking salespeople’s commissions and performance. 

Commissions 

Commissions are a type of remuneration. Individuals receive “variable” rewards since they are contingent on performance. Commissions are often calculated as a proportion of the sale volume, revenue, gross margin, or other criteria. Commissions are paid on top of other types of remuneration, such as salary. 

Commissions Expenses 

Commission expenditure is an accounting phrase that refers to an entry that is used to reflect a company’s responsibility for salesperson remuneration. 

Compensation Administration 

Compensation administration is a subset of human resource management that handles claim monitoring and administration, report development, revenue recognition, and communication with employees, managers, insurance carriers, medical personnel, and attorneys. 

It refers to the planning, organization, and management of direct and indirect payments made to employees for the work they do. 

Sales management can choose from three main pay plans: salary, commission, and combination (salary + incentive). 

Compensation Management Software 

Compensation Management Software (CMS) is a program used to evaluate and update compensation policies, schedule bonuses, and commission components, and suggest pay modifications. 

Compensation Strategy 

 A compensation plan is a high-level method to align a company’s incentives, perks, salary, and other types of payment with its goals. 

Configuration, Pricing, and Quotation (CPQ) 

Sales personnel may use CPQ systems to create correct product or service selections, pricing, and quotations. Such systems are distinguished by their ability to respond quickly and accurately to prospects’ demands while eliminating quotation mistakes and rework. 

CRM  

CRM (Customer Relationship Management) software is designed to aid a company’s interactions with customers, clients, and sales prospects as they go through the sales funnel. 

Salesforce Sales Cloud, SAP, Oracle, and Microsoft Dynamics 365 are examples of such software. 

Decelerator 

A decelerator is the inverse of an accelerator. A decelerator is a lowered commission rate that reduces a representative’s compensation in comparison to what she would have earned with her basic commission rate. Decelerators can be used to punish poor performance (before a representative reaches quota) or to avoid excessive rewards (after a rep hits quota). Decelerators may demotivate a sales representative and should be used with caution. 

Example (penalizing bad performance): Jennifer will earn $10,000 if she meets her quota of $100,000, implying that her basic commission rate is 10%. To compensate for below-average sales performance, her commission rate on all transactions up to $100,000 is only 8%. 

Example (to minimize excessive payouts): When Jennifer meets her quota, her commission rate increases to 12 percent. This is a performance accelerator designed to recognize and reward exceptional performance. However, sales management has a strict budget for sales commissions and prefers to avoid large payouts. So, after Jennifer reaches 130 percent of her quota, her commission rate drops down to 8%. 

Direct Credit 

 The credit is assigned to a sales representative or payee depending on any behavior, ranging from sales to meeting quotas. 

Dispute resolution 

It refers to a variety of techniques that can be used to address or settle issues including commission cutbacks, commission splits, confusing language in contracts or commission paperwork, and so on. Negotiation, mediation, and arbitration are three regularly utilized techniques of settling disputes without going to court. 

Draw 

 Funds that a sales representative can borrow from the company in exchange for future commissions. Draws might be “recoverable” (the salesperson must repay the corporation with future commissions) or “non-recoverable” (no need to pay it back). Draws are commonly utilized by new reps to bridge the gap between when they start working and when they begin getting commissions on sales. 

Executive Compensation 

Any portion of a company’s incentive and compensation schemes for senior management. Long-term or yearly incentives, deferred remuneration, benchmarking versus competitors, and even retention programs are examples of these. 

Gate 

 It is a qualifying component of an incentive compensation or commissions scheme that, when satisfied, allows for the payment of another component. Achieving a specific percentage of a quota, for example, might be a stepping stone to a sales incentive paid when a salesperson sells x or more units of a product. 

Guaranteed pay  

A minimum amount is guaranteed to be paid to a payee or salesperson, which a company may or may not reduce from future commission payments. 

Hierarchy 

It is a system of ranking inside an organization based on skill level, seniority, and commission paid (occasionally Multiple Hierarchies). Within a single organization, many hierarchies may exist, resulting in remuneration at multiple levels of the reporting chain. 

Within a sales organization, for example, sales team leaders may report to a branch manager, who may then report to the regional sales manager, and so on. 

A person higher in the hierarchy may get a percentage commission on money generated by someone lower in the hierarchy (known as a rollup). 

Company hierarchies in software systems prevent specific personnel from accessing the system. 

Hierarchies can also reflect relationships between two or more things, such as product categories and subcategories, customers (United States/Southeast Region/customers), and so on. 

Incentive Compensation Management (ICM) 

ICM, or Incentive Compensation Management, refers to software that assists Sales Compensation Administrators in automating processes such as performing computations and creating reports, with the added benefit of avoiding mistakes associated with spreadsheets. 

Incentive Management 

Sales incentives are prizes and bonuses given to salespeople in exchange for completing specified targets, often selling products or services, to motivate additional sales. 

Individual Incentive 

Individual incentive plans are based on meeting performance requirements, and they are often used when employees have influence over results, are monitored honestly, and foster healthy competition. 

Indirect Plan 

A sort of sales commission plan in which payees are compensated for sales that they did not close themselves. 

Kicker (also known as an accelerator) 

 A higher commission rate raises a representative’s compensation in comparison to what she would have received on her standard commission rate. Kickers are used to recognizing and rewarding exceptional achievement. They are often triggered if a salesperson has met his or her quota. 

• For example, if Jennifer meets her quota of $100,000, she would earn $10,000, therefore her basic commission rate is 10%. Jennifer’s commission rate increases to 12 percent after she meets the quota, providing additional incentive to sustain her excellent performance. 

Key Performance Indicators (KPI) 

Key Performance Indicators (KPIs) are high-level, quantitative metrics that assist a corporate organization track its progress toward bigger goals, such as organizational initiatives. KPIs differ depending on the company’s goal. 

KPIs for growth, for example, maybe revenue and market share, whereas KPIs for better profitability could be net margin and cost of sale. 

Line of Business (LOB) 

A line of business refers to sectors within a company that may be distinguished by the products and services offered, the size of the customer, the customer’s expectations, the distribution channel, and the brand. 

Long Term Incentive 

Any incentive in which the amount is determined by the number of years of performance. 

Management by Objectives (MBO) 

Management by Objectives is a technique that allows managers and team members to collaborate to develop shared performance targets. 

On-Demand 

 Anything on-demand refers to software as a service that requires little to no installation and provides value instantaneously over the web. 

On-Premise 

Traditional software applications or programs must be installed on a device or hardware within a business’s physical location. 

On-Target Commissions (OTC) 

On-Target Commissions (sometimes abbreviated as OTE) On-Target Earnings) is the amount paid to a payee if all of their objectives are met. 

On-Target Earnings (OTE) 

On-Target Earnings (or simply Target Earnings) is the amount paid to a payee if all of their objectives are met. A salesperson’s compensation earnings are made up of basic pay as well as variable components of a compensation plan such as bonuses and commission. 

Override 

Commission on sales Override is a type of indirect payment, similar to roll-up, in which an employee receives a part of the proceeds from a sale completed by another employee. 

A product manager, for example, may earn a 2.5 percent override on items sold by sales representatives even though the reps do not work for them. 

Pain Point 

A pain point is a specific problem (such as a product or service) that annoys prospects while they are in the sales funnel. 

Customers may encounter issues with online research, website navigation, product cost and availability, checkout, multi-channel purchasing, tracking, shipping, and so on. 

Pay Mix 

Pay Mix The percentage of a salesperson’s total remuneration that is made up of salary and on-target commission is referred to as the pay mix. It is the ratio of basic salary to incentive pay. 

A 70/30 pay mix, for example, indicates that fixed base salary accounts for 70% of total on-target earnings, and variable commission accounts for 30% of total on-target earnings. 

Payee 

Individuals or individual entities whose income is changeable dependent on their performance as specified by the Incentive Compensation Management system are referred to as payees or participants. 

Plan 

Sales incentive programs are made up of numerous components, such as commission rates, regions, quotas, gates, durations, and so on, to determine how much payees are compensated. 

Plan communication and acceptance 

A communication strategy is a road map created to present stakeholders with a clear, precise message including information about a recently introduced product or service. It specifies who should get certain information, when that information should be supplied, and which communication channels will be utilized to do it. 

An acceptance plan is a contract between a client and management that describes the activities and criteria that must be satisfied for the customer to provide final approval when the project is completed. 

Plan design and Modelling 

Compensation plan design refers to the process of creating a plan that includes components that add up to a sales representative’s base pay, commissions, incentives, and so on while aligning them with the company’s goals and financial objectives. 

Design of a Plan Modeling tests several plan design choices to evaluate how different levels of sales outcomes affect the overall commission budget and how this affects plan members. 

Position 

The position of a person in an organizational structure or hierarchy is referred to as his or her position. It specifies the extent of their tasks inside a company. 

Regional sales manager, sales manager, inside sales representative, outside sales representative, sales assistant, sales engineer, and more roles are examples. 

Premium 

An extra payment or a quantity of money added to an employee’s regular pay rate (e.g., overtime, double-time for holidays, etc.). This might also refer to the amount to be paid for an insurance contract in insurance language (e.g., a life insurance premium). 

Production Run 

A Production Run is a computation used to settle payment amounts for the current pay period. 

Prorate 

 When the payout part of an incentive is adjusted based on eligibility conditions such as length of service or probationary periods. 

Qualified Lead 

A sales qualified lead is a prospective customer who has been researched and vetted according to an organization’s lead qualification criteria — first by the marketing department and then by the sales team — and has been deemed ready for the next stage in the sales process, i.e. they are ready to be pursued by the sales team for conversion into a full-fledged customer. 

Quota  

Quota, also known as the goal, aim, performance target, or target, is the amount that a salesperson must sell to receive a commission for a specific period (month, quarter, or year). It can be stated in terms of absolute numbers, percentages, or the number of products or services sold or recovered through future payments. 

Recurring Revenue  

Recurring revenue in sales, which is common in the SaaS (Software as a Service) business subscription model, refers to payments made at regular intervals, such as ARR (Annual Recurring Revenue), QRR (Quarterly Recurring Revenue), and MRR (Monthly Recurring Revenue) (Monthly Recurring Revenue). 

Retroactive 

A retroactive input or choice is one made today that must be effective as of a date that has already passed. As a result, back payments or other modifications to earlier payments may be required. 

Roll-Up 

A rollup is a sales commission that is rolled from one payee to another based on the two’s organizational reporting connection. For example, if a salesperson receives credit for a transaction and reports to a manager who also receives credit. 

Sales (Incentive) Compensation 

The amount provided to sales employees (e.g., sales representatives, sales management, and sales support) in return for selling a specified quantity of items or services is known as sales (incentive) compensation. It is not guaranteed or set in the same way that a basic wage is. It is instead paid on top of it. 

The majority of sales compensation plans include an “at-risk” component depending on performance. Also known as incentive pay, variable pay, at-risk pay, and pay-for-performance. 

Sales Commission 

Sales commission is a sort of variable pay that is given to salespeople in exchange for completing certain sales goals. 

Sales Commission Metrics 

Sales commission metrics are described as an organization’s Key Performance Indicators (KPIs) for measuring a salesperson’s performance against goals and objectives. 

Sales commission plans 

Sales commission plans include all aspects of a sales commission, including regulations, qualifying requirements, a base wage, and variable commission compensation. 

Sales Compensation 

1. The amount is given to sales professionals (such as sales representatives, sales management, and sales support) in return for sales results. 

2. The specific collection of operations that comprise the realm of incentive compensation for sales staff, which includes formulating plans, managing rewards, and reporting to management. 

Sales Incentive Plans 

Sales compensation plans explain and include the components of a salesperson’s remuneration for performance, which are often made up of basic pay, commission, and extra benefits, incentives, or bonuses. 

Salesforce Automation (SFA)  

Refers to the automation of duties connected to sales and sales operations. 

Sales goals 

Sales goals are objectives that are defined for a salesperson or a sales team. 

Examples of common sales goals include growing revenue, improving client retention by a particular percentage, optimizing sales processes, increasing the number of customers, increasing sales representative productivity, and minimizing time wasted. 

Sales Organization 

The company’s selling unit is the sales organization. It examines the company’s sales requirements and creates them accordingly. The sales organization’s principal duty is to sell and distribute goods and services. 

Other functions include recruiting and training employees, equipping the sales force, conducting market research, deciding on the brand and trademarks for the products, forecasting sales trends, managing sales budgeting, and developing policies related to channels of distribution, terms, and conditions of sale, product prices, trade, and cash discounts, conditions regarding the return of goods, the period of credit, the mode of payment, and so on. 

Sales Performance Incentive Fund (SPIF) 

A SPIF, or Sales Performance Incentive Fund, is an additional incentive to payees that are intended to promote specified behaviors for a limited period. This is common in contests where a sales manager may employ a SPIF to create an additional incentive for salespeople to sell aggressively until the conclusion of a quarter. It should be noted that, as with many terminologies in the realm of sales commissions, the actual words that comprise this acronym are widely debated. This may alternatively be referred to as a “Special Product Incentive Fund” or a “Special Performance Incentive Fund.” We’re not sure what the last “F” stands for when it’s spelled “SPIFF.” 

Example: Catherine planned a dramatic conclusion with only four days remaining in the month. As a result, she announced a $500 SPIF for each sale until the end of the month. 

Sales Performance Management(SPM) 

It is concerned with the competencies required to keep the sales organization’s performance going smoothly. It aids in the planning, administration, analysis, and improvement of the performance of sales organizations. SPM integrates sales emphasis with both sales strategy and company goals. 

• Plan design and modeling 

 • Quota and territory management  

• Plan communication and acceptance 

 • Compensation administration and reporting 

 • Incentive Compensation Management 

 • Dispute resolution 

• Analytics 

Sales Quota 

Quota are sales objectives that salespeople must meet in a specific time frame to be eligible for variable compensation. 

Sales Representatives  

Sales representatives work directly for the firm and serve as a liaison between the company and its clients. They often have exceptional communication, public speaking, and negotiation abilities, which enable them to grasp what the customer wants, build trust with the consumer, and display subject matter commands. They must guarantee that all clients receive the consumers and services they requested, as well as pitch future customers. 

Sales Target 

Sales Targets are goals for sales departments, teams, and individuals. Quotas and targets are used interchangeably. Typically, “Target” is used in APAC and EMEA, whereas “Quotas” is used in the US. Typically, targets and quotas are set for a specified period (aka period). 

Sales Teams 

A sales team is a group of employees that are responsible for selling a company’s products, subscriptions, and services to customers. It not only creates income but also has a significant influence on brand image, customer retention, long-term customer relationships, and so on. 

Service Level Agreement  (SLA) 

 Service Level Agreements (SLAs) from software providers are assurances offered, such as an SLA to have an SPM with high availability; a 99.9% uptime. 

Split 

Split The amount of incentive payments and expenditures that are shared between two or more employees is referred to as the split. 

Split sales commission agreements 

Split sales commission agreements divide the commission earned on a sale into shares to compensate all salespeople for their efforts. Split sales commissions can be allocated evenly or customized to each payee. 

Targeted Incentive Compensation 

The entire amount of variable compensation earned by a sales representative if she meets her target performance is referred to as target incentive compensation (i.e. she hits quota). It excludes the base wage. When you combine target incentive compensation with base salary, you receive on-target earnings. 

Term 

It refers to the contract’s time frame. When a contract is ended early, it is subject to a charge or penalties. 

Territory 

Territories are groups of prospects and customers that are assigned to certain salespeople or teams to sell products or services. Each team is in charge of its own region and is commissioned appropriately. 

Threshold 

The threshold is the lowest level of performance that a salesperson must accomplish to receive an incentive payment. 

Tiered Commission 

The milestones put into an offer are referred to as a tiered commission. Here’s how it works: a basic commission is defined, along with its kind and length, and then other gradually larger commissions are piled on top of it to drive salespeople to sell more and earn more. 

For example, the salesman earns a 2% commission on sales of up to $30,000. The salesman earns a 2.5 percent fee on sales between $30,001 and $60,000. 

Top Performers 

 A company’s Top Performers are the sales reps who accomplish better win rates than others and contribute to the improvement of sales development procedures. 

Total rewards 

Total Rewards also known as total compensation, encompass all components of a payee’s earnings, such as long-term incentives, recognition and reward programs, perks, training, and so on. 

True-up (aka Catch up) 

True- Up is a payment adjustment procedure used to match or reconcile disparities between two amounts. The correction takes place at a predetermined true-up frequency. After all other payment computations have been performed, true-up adjustments are normally provided. 

Variable Pay  

Variable pay is the amount of sales remuneration dependent on the payee’s degree of achievement or performance. It is also known as “pay-for-performance” or “at-risk” pay. When a payee does a bit better than normal, his/her compensation rises; when a payee underperforms, his/her pay falls. 

Workflow 

Workflows, as defined by Canidium, are automated business processes. Workflows inside SPM/ICM can contain procedures such as new sales rep onboarding, sales plan acceptance, dispute settlement, and so on. Workflows can be simple or complicated, depending on the needs of the organization.