Commission for Long Sales Cycles

I’ve built over 20 sales commission plans in my career. What frequency is best? Monthly? Quarterly? This is a question I get asked very often, so here’s my take: The general principles: 1- More often = better Sales need to taste money. The more frequently you calculate and pay out commissions, the more velocity you’ll create in your team. I’ve seen countless examples of companies that switched from quarterly to yearly and saw a slowdown in their team’s momentum. 2- Align with the sales cycle length In theory, a sales team should manage their pipeline and close deals consistently throughout the year. But when your sales cycle is 12-18 months, closing deals every month just isn’t realistic. Here’s what I usually recommend: - Sales cycle of less than 3 months: monthly - Sales cycle of 4-12 months: quarterly - Sales cycle of 13+ months: bi-yearly 👉 One move I’m the most proud of was combining a monthly commission plan with a quarterly kicker. It worked really well for motivation. Here’s how it looked: - Sales had a monthly commission plan - The problem: Too many ups and downs (one good month, one bad month) - The solution: A quarterly bonus to reward consistent performance 👉 Example: - When sales hit 100%+ of their quota over the quarter → $1000 + 20% of MRR - When sales hit 125%+ of their quota over the quarter → $2000 + 30% of MRR So you can very well combine monthly & quarterly comm plans. This combination gave the team both short-term wins and long-term goals to push for. Don’t hesitate to share your best practices for managing commission plans. ---- PS: I wrote an article on how to design a sales commission plan on the lemlist blog. Feel free to check it out.

This AV salesperson closed a $1.1 million deal. His expected commission? $40,000. His actual payout? $10,000. It was a commercial integration project that took 2 full years to get over the line. The deal finally landed in October. But over the summer, the company restructured its commission plan. The new policy splits commission between signed revenue and delivered revenue. Which meant a large portion of the commission would now only be paid once the project was fully completed, not when the contract was signed. And because the installation wouldn’t finish until Q2 the following year, around $30,000 of his commission was deferred. Nobody properly explained what that would mean for deals already deep in the pipeline. He only found out after asking why his December commission check was so low. And it was a casual response from HR No follow-up conversation. No consultation. No acknowledgement of how it would impact salespeople already working long-cycle deals. He’d spent two years on that project. And right before the biggest win of his career landed, the payout structure changed. He called me in January. After 3 conversations, he accepted another offer the following month. The company still hasn’t replaced him. Salespeople keep score. They remember exactly what they were promised. And exactly what they received. Markets change and Comp plans evolve. But how you communicate those changes, and whether you protect trust on deals already in motion, tells your sales team everything they need to know about how secure they really are.

A learner asked me: "Why hasn't sales compensation changed?" Over the past decade, many software companies moved from perpetual licenses to subscription (SaaS) or consumption-based models. Yet, they often never updated how they pay sellers. The reason? They underestimate the shift. It's more than a new pricing page—it changes: 💥 First-year revenue (drops significantly) 💥Risk profile (moves to the buyer) 💥Sales cycle velocity (wins happen faster) 💥Win rate (often drops) 💥Retention rate (often drops) 💥Pipeline needs (go way up) If we ignore these changes, we close fewer deals—& the ones we do close are more likely to churn. In a modern org that recognizes the impact of this shift, sales comp will align with SaaS & consumption models, helping us emphasize retention and expansion. No more purely transactional sales—resulting in higher NRR and GRR rates. Sales training & comp plans can reward behaviors for long-term customer retention: providing incentives for expansion, usage milestones, and paying commissions in phases. 5 Key Reasons Sales Comp Is Evolving: 1. Revenue realization over time In a subscription or consumption model, revenue typically trickles in monthly (or as usage occurs) rather than arriving in a large lump sum at the time of purchase. Because revenue is now recognized (and renewed) over time, sales compensation plans increasingly need to focus on ongoing customer impact rather than a closing that one-time deal 2. Emphasis on customer retention and expansion With recurring revenue, a customer’s lifetime value (LTV) depends on continuous renewal & potential expansion. Many companies now design incentives that encourage sellers to bring in high-fit customers who are likely to renew and grow rather than just close the biggest initial deal. 3. Shared accountability with Customer Success In a subscription world, retaining and expanding customers typically falls under CS, not sales. Comp plans increasingly should align both sales and CS teams around the same goal: driving recurring revenue. 4. Longer sales cycles Today, the buying process may involve a pilot a solution before committing to a bigger spend. Because deals can be smaller up front (land) but scale over time (expand), sellers need comp structures that reward nurturing and growing accounts rather than focus time only on new logos. 5. Risk-Sharing and Delayed Commission Some orgs now pay sellers a portion of their commission upon initial signing and another portion when customers achieve a milestone like first impact, a usage milestone, or a renewal. This ensures the sales does their part to ensure a high customer-solution fit. This helps align all team members on the primary element of growth: recurring impact. Ultimately, sales comp should align with key metrics (like Net Revenue Retention). That’s how we match the realities of this monetization shift—focusing on retention, expansion, and customer impact. We’re getting there...slowly but surely. 💪

Too many companies are still using one-size-fits-all compensation plans for sales reps. But this doesn't account for the fundamental differences in sales roles. An SDR cold calling potentially unqualified prospects requires a completely different compensation structure than someone handling warm inbound leads who've already expressed interest. With inbound leads from paid ads or organic content (where prospects are raising their hand saying "I'm interested") you don't necessarily need a big base salary. A modest base of $500-750 goes a long way, but the focus should be on their On-Target Earnings (OTE). But if you're asking someone to do cold outreach? That's a harder job with more rejection and fewer opportunities for commissions. Your compensation structure is a signal to your team about what you value and understand. When you design it thoughtfully based on the actual work being done, it shows you respect their challenges. The best commission structures account for: • Lead source quality (inbound vs. outbound) • Sales cycle length • Average deal size • Control the rep has over outcomes When these elements align, magic happens. Your team feels fairly compensated for the actual work they're doing, and they're motivated to perform at their best. What's your commission structure really telling your sales team?

A 12 month OTE with a minimum 18 month sales cycle isn't a comp plan, it's a resignation letter Spoke to an AE last week who just left a FinTech vendor. Two years in, not sacked but left by mutual agreement. He'd sold a few POC's, his pipeline was healthy, he was doing everything right. But the problem is that sales cycles were 18 months plus - Complex deals, Compliance, Procurement, IT, Security etc. He looked at his pipeline, looked at his OTE and did the maths. Even if everything landed eventually , he wasn't going to earn enough to make it work. Not because he wasn't good but because the comp model didn't match the sales cycle. So he walked. Now that company is hiring again - same role, same cycle, same comp structure and they'll probably lose the next person the same way. If you're selling into enterprise, you're not closing in 90 days ! - Everyone knows this. But, if your sales team can't earn properly until year three, you'll keep losing good people at month 18, right before they hit their stride. That's not a hiring problem, that's a comp design problem. Question: Is your OTE achievable inside your actual sales cycle, or is it just a number on a job spec ?

Recently, someone asked me about how companies with usage-based models calculate sales commissions. Drawing from my own experience and insights from our advisors, sharing a more standardized explanation here. Unlike traditional subscription models, where the Annual Recurring Revenue (ARR) is fixed and clear at the time of contract signing, usage-based companies face the challenge of not knowing in advance how much they will earn from a customer. This uncertainty requires a flexible approach to calculating sales commissions. 1. Based on Realised ARR a. Based on every quarter: This method evaluates commissions quarterly in the first year, based on the realized ARR over the past three months. End of Q1: Commission is calculated based on the ARR realized at the end of the first three months. For example, if the ARR is $100K, the commission is $100K multiplied by the base commission rate (BCR). End of Q2: The commission for the second quarter is calculated on the incremental ARR since the end of the first quarter. If the ARR at six months is $250K, the commission is based on the additional $150K ($250K - $100K) using the BCR. End of Q3: The commission for the third quarter is calculated based on the increase in ARR since the end of Q2. For an ARR of $300K at nine months, the commission is on the additional $50K ($300K - $250K) using the BCR. End of Q4: The final calculation at the year’s end adjusts for any further increase in ARR. With an ARR of $400K at twelve months, the commission is on the incremental $100K ($400K - $300K) at the set BCR. If a quarterly decrease in ARR exceeds $25K, the annualized amount of the decrease is subtracted from the quota achievement. b. Three-month average: The companies will wait three months to establish an average, then annualize this figure (multiplied by four). c. One-month snapshot: This method is based on the ARR recognized in the latest month and annualizing it (multiplied by twelve). 2. Based on Contracted ARR Another approach companies take is to calculate commissions based on a contracted ARR agreed upon at the time of signing with the client. I would love to know if there are other methods that you deploy. Rakib Azad David Woolliscroft #usagebased #salescommission #B2BSaaS