Commission Strategies in Direct Sales

One of my first moves as Chief of Staff: fix the sales commission structure. Most companies pay lower commissions on renewals. 
They think renewals are easy and automatic. That’s bullsh*t. Renewals face churn risk every cycle.
 Customer success can drop the ball.
 Product bugs appear.
 Competitors undercut.
 Budget cuts hit. Economic shifts kill deals.
 Sales owns the outcome but controls almost none of it. I push for the same commission rate on renewals as the initial close.
 Better: pay on total contract value (TCV) from day one.
 Initial sale + all renewals and expansions at the same rate. Why it works: Reps stay engaged through the life of the account They fight harder to prevent churn They upsell naturally because it pays the same Team morale stays high; no resentment over “easy money” tiers Results: First: switched to flat 20% on TCV. Renewal rate rose 18% in 12 months. Pushed clients into 3 & 5 Year deals. Second: same rate on initial and renewal. Net retention jumped from 92% to 134%. Reps closed 25% more expansions. Your competitors cut renewal commissions.
 They lose deals they could have saved. Pay full rate on TCV.
 Align incentives with reality.

In recent weeks, I’ve had a surge of inquiries about structuring commission and OTE (On-Target Earnings) for Sales Executives and BDMs. It’s a crucial topic—get it right, and you’ll attract and retain top talent. Get it wrong, and you risk demotivated sales teams and missed targets. So, how should you approach it? 1. Start with the Total Earning Potential (OTE) OTE is a combination of base salary and commission. A competitive OTE should align with industry standards and reward high performers. The typical ratio varies: ✅ 50/50 Split – Common in enterprise/B2B sales. ✅ 60/40 or 70/30 – More common for transactional sales, where a higher base ensures stability. 2. Define Clear, Attainable Targets A common mistake is setting unrealistic sales targets, leading to disengagement. The best practice? 🎯 Set a realistic baseline target that at least 60-70% of your team can hit. 🎯 Provide accelerators for over-performance (e.g., higher commission rates after 120% of quota). 3. Choose the Right Commission Model Different structures work for different sales cycles: 💰 Fixed % on Revenue – Simple and effective for high-margin products. 📈 Tiered Commission – Motivates overachievement (e.g., 5% up to target, 10% beyond). 🏆 Profit-Based – Ideal when margins vary widely. 4. Avoid These Common Pitfalls ❌ Capping Commission – Nothing kills motivation faster! ❌ Complex Structures – If your team can’t calculate their earnings easily, it’s too complicated. ❌ Changing the Plan Mid-Year – This damages trust and retention. 5. Regularly Review and Benchmark Against the Market The sales landscape is constantly evolving. Reviewing your commission plan against market trends and competitor packages ensures you remain competitive. 💡 Looking to structure an effective commission plan for your sales team? Let’s talk—I’ve helped many companies find the right balance to drive performance while attracting top talent. What’s working for your team? Drop a comment below! 👇

Got a sales team? Is your commission structure is working against you? Here's the lowdown on making your commission structure a win-win: (does anyone else have Boz Scaggs stuck in their head now?) 👉 Basic pay + commission - Everyone gets a solid base salary. On top of that, we throw in a commission for every sale. This way, everyone's got skin in the game and a safety net. Key note here: base pay is a safety net and shouldn’t be enough for a “comfortable” living, otherwise you’ll end up with people underperforming. 👉 More sales, more Cash - No earning caps! Sell more, earn more. It’s that simple. We set up levels, you hit a level, you get a bigger slice of the pie. Keeps everyone hungry for that next deal. 👉 Time's ticking- All commission calcs reset under one year. No long-term stacking of commissions. This keeps reps hungry. 👉 Spot bonuses for big wins - Knocked a big target out of the park? There’s a bonus for that. It’s our way of saying, “We saw that. We appreciate it.” This doesn’t only include hitting sales targets, but other wins too. 👉 Targets that make sense - We set targets that are fair, based on real numbers and what we know we can achieve. These aren’t pie-in-the-sky numbers; they're your roadmap to making bank. Unrealistic targets are a way to ensure you lose your top performers. 👉 Adapt and overcome Different territories, different challenges. We get it. So, if you’re wrestling alligators while someone else is walking puppies, we’ll adjust the numbers to keep it fair. 👉 Keep it clear - How close are you to hitting your next bonus? There’s an app for that. Or a dashboard. Point is, you’ll always know where you stand. 👉 Performance comp isn’t just for sales - The sales team has two roles: generate revenue and generate information. If a sales person isn’t recording everything in the CRM, their entire commission takes a hit. I recommend a 30% haircut on performance comp if a rep isn’t keeping proper records. This approach is all about making sure your sales team is motivated, rewarded, and clear on what success looks like. It’s about cutting through the clutter and making sure that when the company wins, you win. Now… let’s get out there and close some deals. ✌️ 🧡 🌮

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.

𝗪𝗵𝘆 𝗥𝗲𝘃𝗲𝗻𝘂𝗲-𝗢𝗻𝗹𝘆 𝗦𝗮𝗹𝗲𝘀 𝗖𝗼𝗺𝗺𝗶𝘀𝘀𝗶𝗼𝗻𝘀 𝗔𝗿𝗲 𝗛𝘂𝗿𝘁𝗶𝗻𝗴 𝗬𝗼𝘂𝗿 𝗠𝗮𝗿𝗴𝗶𝗻𝘀 Most #B2B companies today are fighting a tough battle: 📉 Customers want deeper discounts. 📈 Companies need to protect margins. And in the middle of it all? Your sales team. 𝗧𝗛𝗘 𝗣𝗥𝗢𝗕𝗟𝗘𝗠 Most sales commission plans reward revenue only. That means reps get paid the same whether they close a deal at full price or after slashing margins with discounts. The result? Deals get closed… but profitability takes a hit. 𝗔𝗰𝗰𝗼𝗿𝗱𝗶𝗻𝗴 𝘁𝗼 𝗮 𝗿𝗲𝗰𝗲𝗻𝘁 Boston Consulting Group (BCG) 𝘀𝘁𝘂𝗱𝘆, fewer than 10% of sales incentive plans actually reward quality of revenue (pricing discipline, margins, value capture). No wonder sales teams default to discounting. 𝗧𝗛𝗘 𝗜𝗠𝗣𝗔𝗖𝗧 Profitable deals are ignored in the rush to “just close.” Procurement teams are trained to expect discounts. Margin erosion compounds over time, limiting growth. 𝗧𝗛𝗘 𝗦𝗢𝗟𝗨𝗧𝗜𝗢𝗡 1. Price-realization: Compare actual vs target price/discount  (easy to implement, protects confidential info) 2. Margin-based: Compare deal profit vs target  (aligns with profit goals, but harder to manage) 3. Hybrid: Reward both strong starting performance and improvement - great for variable territories or customer segments 𝗧𝗛𝗘 𝗕𝗘𝗡𝗘𝗙𝗜𝗧𝗦 1. Reps focus on high-value, profitable deals instead of chasing every opportunity 2. Smarter negotiations - discounts given only when necessary 3. Better terms secured (longer contracts, upfront payments) 4. Upsell & cross-sell higher-margin solutions 𝗣𝗿𝗼 𝘁𝗶𝗽 𝗳𝗿𝗼𝗺 𝘁𝗵𝗲 𝘀𝘁𝘂𝗱𝘆: Metrics work best when matched to company stage and market context: ✴️ Early-stage → emphasize revenue and growth ✴️ Mature → emphasize margin and strategic pricing ✴️ Highly competitive, price-sensitive markets → incentivize discounting only when needed 𝗜𝗻𝗰𝗲𝗻𝘁𝗶𝘃𝗲𝘀 𝗮𝗿𝗲 𝗽𝗼𝘄𝗲𝗿𝗳𝘂𝗹 - 𝘁𝗵𝗲𝘆 𝘀𝗵𝗮𝗽𝗲 𝗯𝗲𝗵𝗮𝘃𝗶𝗼𝗿. If you want reps to sell smarter, not cheaper, you need to design comp plans that reward how revenue is earned, not just how much. The takeaway: Salespeople will do what you pay them to do. Pay them for profitable growth. Source : Boston Consulting Group (BCG) #SalesOperations #SalesCompensation #RevOps #SalesLeadership #Finance #SalesCommission #SaaS #AccountExecutive