Here at Sales Cookie, we come across a large variety of sales incentive plans. Most make sense, but many also become over-complicated for historical reasons (with no added benefit). In addition, monthly recurring revenue, typical to so many industries, can be tricky to handle.

However, there are times where we stumble on a real gem. Below is one such sales incentive program which we think can be a great choice for any organization with monthly recurring revenue. Note that we altered all numbers for confidentiality reasons (the incentive program’s structure remains the same).

First Split – Is It Recurring?

Proactive Information Management LLC, a technology provider, first broke down their sales incentive compensation into 2 main categories:

  • Monthly Recurring Deals (Contracts)
    • Commissions based on revenue for the first month of the contract
    • Commissions are also based on the contract’s duration (commitment)
    • Next, commissions are calculated using a table-like logic
      • 36+ month commitment = X% of the 1st month’s revenue
      • 24 month commitment = Y% of the 1st month’s revenue
      • 12 month commitment = Z% of the 1st month’s revenue
      • Otherwise, 10% of the 1st month’s revenue
  • One-Time Deals
    • Commissions are based on profitability (markup)
    • Next, commissions are calculated using a table-like logic
      • X%+ markup = X% of profit
      • Otherwise, nothing

Second Split – Is It a New Customer?

This IT technology organization further split the above two categories into two sub-categories based on whether the customer was new vs. existing:

  • Monthly Recurring Deals (Contracts)
    • For existing customers, adjust percentages down
      • 36+ month commitment = A% instead of X%
      • 24 month commitment = B% instead of Y%
      • 12 month commitment = C% instead of Z%
      • Otherwise, 5% instead of 10%
  • One-Time Deals
    • For existing customers, adjust percentages down
      • X%+ markup = A% instead of X%
      • Otherwise, still nothing

Why Is It A Gem?

Here are a few reasons why this incentive program is a true gem:

  • It promotes specific sales behaviors
    • Commissions are higher for new customers (vs. existing customers)
    • Commissions are higher when profitability is higher
    • Commissions are higher when the commitment is longer
  • It is an incentive plan on auto-pilot
    • This incentive program does NOT have a minimum quota required to receive commissions (quotas can be remarkably hard to set).
    • Sales reps also feel they have a stake in each sale because they do qualify for a sales commission for each deal they close.
  • It handles monthly recurring revenue well
    • Paying commissions based on the 1st month of recurring revenue is a remarkable simplification.
    • Many of our clients under-estimate the complexity of recurring revenue – tax rates change, customers upgrade or downgrade, etc.
  • It pays commissions immediately
    • Reps receive a commission as soon as the contract is signed, based on the customer’s commitment. There is no waiting period.
  • It protects the company from excessive discounts
    • Reps receive a commission for one-time deals based on actual profitability. There is also a robust blend of revenue-based vs. profit based incentives.
  • It is easy to understand
    • This is often a neglected aspect of sales commission plans. Having a plan reps can understand increases transparency and reduces churn.

Our Model

To model this sales incentive program, we did the following in Sales Cookie:

  • Create 4 plans
    • New Customer + MRR Contract
    • Existing Customer + MRR Contract
    • New Customer + One-Time Deal
    • Existing Customer + One-Time Deal
  • Set a transaction filter on each plan
    • This ensures the right transactions are processed by each plan
  • Use a scoring formula
    • This implements the table-like logic listed above to score each transaction
  • Add a score-based reward
    • We simply assigned 100% of the calculated score to each rep

In Conclusion

We hope you found this post interesting and useful. If you have a sales commission program with monthly recurring revenue (MRR), ProActive‘s approach is definitely worth taking a look at. Feel free to reach our on our website for help or for a personalized demo!